Benjamin Graham | Singapore value investors to know his tips
Benjamin Graham, the teacher of Warren Buffet is well regarded as the father of value investing and the dean of the wall street. Ben Graham began his teaching first at Columbia Business School in 1929 and subsequently at UCLA Anderson School of Management.
Besides Warren Buffett, Benjamin Graham had taught many other students including the more well known value investing gurus such as William J.Ruane, Irving Kahn and Walter J.Schloss.
Benjamin Graham worked at Wall Street and made $500,000 at the age of 25 in the early 1900’s, formed a partnership with Jerome Newman. Such investment result implies that Benjamin Graham had a very high IQ. Ben Graham also wrote two famous value investing books which are Security Analysis and The Intelligent Investor.
While many of us would like to learn from Warren Buffett, we should also know who is Benjamin Graham and what are the three key tips from this Warren Buffett’s most well respected teacher and influential mentor.
3 value investing tips from Benjamin Graham
1. A stock is the right to own a small portion of a business. Not to forget that a stock represents an ownership of a company. It is only as valuable as its company in long term perspective.
2. To use a margin of safety or in another words, to buy stocks when their market price is significantly below their intrinsic value.
3. To treat Mr. Market as your servant and not your master. Benjamin Graham used “Mr. Market” to personify the stock market. People often buy and sell stocks based on emotions and this may cause the stock market to react wildly sometimes.
Original Benjamin Graham’s 1o points checklist
1. An earnings-to-price yield at least twice the AAA bond rate
2. P/E ratio less than 40% of the highest P/E ratio the stock had over the past 5 years
3. Dividend yield of at least 2/3 the AAA bond yield
4. Stock price below 2/3 of tangible book value per share
5. Stock price below 2/3 of Net Current Asset Value (NCAV)
6. Total debt less than book value
7. Current ratio great than 2
8. Total debt less than 2 times Net Current Asset Value (NCAV)
9. Earnings growth of prior 10 years at least at a 7% annual compound rate
10. Stability of growth of earnings in that no more than 2 declines of 5% or more in year end earnings in the prior 10 years are permissible.
Note: The above list may not be 100% relevant in today’s context. If you are keen to master the key fundamental analysis techniques for value investing in a simplified and easy manner, you can consider this Value Investing Program Singapore.
The key lesson to learn from the above 3 tips and 10 points checklist from Benjamin Graham is to realise the importance of doing our own research value estimates instead of doing stock speculation.