Library: Intelligent investor

In the intelligent investors by Benjamin Graham, 7 quantitative criteria are examined. Let’s take a look at these criteria:

1. Adequate size of enterprise

  • Exclude small companies

2. Sufficiently strong financial conditions

  • Current asset at least 2x current liability.
  • Long term debt < working capital
  • Utilities / telco, debt < 2x book value (debt/equity < 2)

3. Earning stability

  • At least positive earnings declared in last 10 years

4. Dividend record

  • Uninterrupted payments for at least 20 years

5. Earnings growth

  • At least 1/3 increase in EPS in last 10 years, using 3 years average at beginning and end

6. Moderate Price/Earning Ratio

  • Current price should not exceed 15x earnings averaged over last 3 years

7. Moderate ratio of price to asset

  • Current price should not exceed 150% of last reported book value
  • Allowance for lower P/E but selling at higher book value (e.g P/E of 9, 250% book value)

For the whole portfolio, the earning to price ratio should at least be as high as the current high grade bond rate.

About the author: Simple Investor SG