This is probably the oldest working investment strategy in the world. What makes it so special?
There are countless investment strategies. Some better, some worse. Some work for a short time, some for a long time. But there aren't many that survive and work after 70 years. But there is one!
And that is none other than Benjamin Graham' s legendary strategy , which proved its power in his hands and in the hands of his disciple Warren Buffett - arguably the greatest investor of all time. Graham's ideas and methods of investing are well documented in his books Security Analysis (1934) and The Intelligent Investor (1949), two of the best-known texts on investing ever written.
And it seems to be something that really works. Thousands of investors, including Warren Buffett, have been following these fundamentals for 73 years. And they're still mostly successful!
What is the essence of Graham's investment philosophy?
Benjamin Graham's investment philosophy boils down to value investing, which seeks to buy those stocks that are undervalued based on earnings per share (EPS), book value and investment multiple.
How does Graham view market volatility?
Graham views the inevitable market volatility as an opportunity to exploit weakness as buying opportunities. In short, Graham seeks out stocks that are trading at a discount to their correct market value and then holds those stocks until the market regains its equilibrium and the stock price moves higher in line with its correct valuation.
How does Graham distinguish between investors and speculators?
Graham looks at investors as long-term thinking people who don't want to buy and sell for a quick profit. In contrast, speculators are traders who are very active and seek short-term gains and minimal losses. The problem with speculators, according to Graham, is that they are not given any fundamental research on stocks, only the current price is important to them. Graham urges his readers to decide what kind of trader they are, whether a speculator or a value investor, before they get involved in the market.
What are Graham's criteria?
Reasonable size - The company must have turnover of at least $100 million in the last 12 months. (Graham used a minimum of $100 million and at least $50 million in total assets.)
Strong financial condition - The company must have a current ratio (current assets divided by current liabilities) of at least 2.0. It must also have less long-term debt than working capital.
Profit Stability - The company must have had positive profits for the last 10 years.
Dividend history - Graham required at least 20 YEARS OF PAID DIVIDENDS!
Profit Growth - Profits must have grown at least 3% per year for the last seven years.
Low P/E - The stock must have averaged a P/E of 15 or less over the last three years .
Moderate price to asset ratio. Price to earnings times price to book value ratio must be less than 22.5.
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources (YTB, Investopedia, Wikipedia). Investing in financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.