Based on Benjamin Graham, compiled by Janet Lowe, The Rediscovered Benjamin Graham / Benjamin Graham Collection (格雷厄姆精选集)
Benjamin Graham (1894-1976) is universally recognized as the father of value investing and security analysis. His intellectual framework, developed over four decades of teaching at Columbia Business School and managing the Graham-Newman Corporation, remains the foundation upon which every serious value investor builds. Warren Buffett, his most famous student, has repeatedly called The Intelligent Investor "by far the best book on investing ever written."
Janet Lowe's compilation, The Rediscovered Benjamin Graham (published in Chinese as 格雷厄姆精选集), gathers Graham's most important essays, speeches, interviews, and previously scattered writings into a single coherent volume. The collection spans Graham's entire career and reveals the evolution of his thinking — from the quantitative rigor of Security Analysis (1934) through the more accessible wisdom of The Intelligent Investor (1949, revised through 1973) to his final reflections in the mid-1970s.
Graham's investment philosophy rests on three interconnected pillars:
A stock is a fractional ownership of a real business. It is not a ticker symbol, a chart pattern, or a speculative chip. Every stock purchase should be evaluated as if the investor were buying the entire company. This mindset forces rigorous analysis of the underlying business economics — earnings power, asset values, competitive position, and management competence.
The market is there to serve you, not to instruct you. Market prices reflect the consensus of often-irrational participants. The intelligent investor treats price fluctuations as opportunities to buy cheaply or sell dearly, never as validation or refutation of an investment thesis. Graham's Mr. Market allegory (Section 3) codifies this principle into an unforgettable mental model.
Margin of safety is the difference between intelligent investing and speculation. By insisting that every purchase be made at a significant discount to a conservative estimate of intrinsic value, the investor creates a buffer against analytical errors, bad luck, and the inherent unpredictability of the future. This single concept — margin of safety — is Graham's most enduring contribution to investment thought.
Graham began his Wall Street career in 1914 and was deeply scarred by the 1929 crash and its aftermath, during which he lost nearly 70% of his capital. This experience forged his lifelong insistence on capital preservation over capital appreciation. He was not merely theorizing about risk — he had lived through catastrophic loss and rebuilt from it.
The Graham-Newman Corporation, which he managed from 1936 to 1956, achieved an annualized return of approximately 14.7% net of fees, compared to approximately 12.2% for the S&P 500 over the same period. More importantly, it did so with substantially lower volatility and drawdowns, demonstrating that disciplined value investing could outperform while taking less risk.
Graham divides all investors into two categories — not by wealth or intelligence, but by temperament and willingness to dedicate time:
| Dimension | Defensive Investor | Enterprising Investor |
|---|---|---|
| Time commitment | Minimal (hours per quarter) | Substantial (hours per week) |
| Temperament | Patient, passive | Analytical, active |
| Goal | Adequate return, low risk | Superior return, managed risk |
| Portfolio style | Diversified, blue-chip | Concentrated, bargain-focused |
| Effort required | Follow simple rules | Deep security analysis |
Both paths can produce satisfactory results. What Graham explicitly warns against is the middle ground: the investor who wants enterprise-level returns without doing enterprise-level work. This investor invariably speculates while believing he invests.
Graham devoted an entire chapter of The Intelligent Investor to this concept and called it the "central concept of investment." In the Collection, multiple essays reinforce and expand upon it.
Margin of safety is the quantifiable gap between the price paid for a security and a conservative estimate of its intrinsic value. It is not a feeling, a narrative, or a qualitative judgment. It is a number.
Margin of Safety = (Intrinsic Value - Purchase Price) / Intrinsic Value
Graham insisted on margins of at least 33% for stocks and varying levels for bonds depending on coverage ratios.
The margin of safety serves four simultaneous functions:
Absorbs analytical error. No valuation is precise. A 40% margin of safety means the stock remains profitable even if the analyst overestimated intrinsic value by 30%.
Buffers against bad luck. Recessions, regulatory changes, competitive disruptions, and management failures are inevitable over a portfolio lifetime. A sufficient margin absorbs these shocks without permanent capital loss.
Converts mediocre analysis into adequate results. The investor with a large margin of safety does not need to be brilliant — merely approximately correct.
Transforms the probability distribution. A stock purchased at 60 cents on the dollar has a high probability of profit and a low probability of significant loss. The upside/downside asymmetry is structurally favorable.
| Asset Type | Minimum Margin of Safety |
|---|---|
| Blue-chip stocks | 33% |
| Secondary / smaller stocks | 50% |
| Net-net working capital | 33% below NCAV |
| Investment-grade bonds | Earnings cover 3x interest over 7 years |
| Speculative-grade bonds | Avoid entirely |
Graham observes a powerful paradox: the stocks that appear most dangerous to the conventional investor (those that have fallen sharply in price) are often the safest in terms of margin of safety, while the stocks that appear safest (those that have risen sharply and carry momentum) often have no margin of safety at all.
Graham asks the reader to imagine a business partner named Mr. Market. Every trading day, Mr. Market shows up at your door and offers to buy your share of the business or sell you his share — at a price he names. Mr. Market is an accommodating fellow: he never takes offense if you ignore him, and he will always return tomorrow with a new price.
The critical insight: Mr. Market is emotionally unstable. Some days he is euphoric and names an absurdly high price. Other days he is despondent and offers his share at a fraction of its true worth. His price is driven by his mood, not by the underlying value of the business.
The intelligent investor:
Mr. Market manifests in several recognizable patterns:
| Mr. Market's Mood | Observable Behavior | Investor Action |
|---|---|---|
| Euphoric | PE > 20, media cheerful, IPO boom | Sell overvalued holdings |
| Mildly optimistic | PE 15-20, steady inflows | Hold, trim at margin |
| Neutral | PE 12-15, balanced sentiment | Hold, begin watchlist |
| Mildly pessimistic | PE 10-12, outflows accelerating | Begin buying quality |
| Despondent | PE < 10, panic selling, crisis headlines | Buy aggressively |
The allegory's deepest lesson is psychological: the investor must develop the emotional independence to act contrary to the crowd. This is not contrarianism for its own sake but rather the rational exploitation of a pricing mechanism that systematically overshoots in both directions.
The defensive investor seeks a satisfactory return with minimal effort and risk. Graham defines "satisfactory" as a return reasonably close to the overall market average, with substantially less exposure to permanent capital loss. The defensive investor explicitly renounces the pursuit of maximum return.
Diversify across at least 10 and no more than 30 stocks. Below 10, concentration risk is excessive. Above 30, the portfolio converges with an index and the effort of selection is wasted.
Invest only in large, prominent, conservatively financed companies. These businesses have the resources to survive adversity and the market liquidity to permit exit when needed.
Insist on a long record of continuous dividends. Graham required at least 20 years of uninterrupted dividend payments. This criterion alone eliminates the vast majority of speculative or untested companies.
Impose a ceiling on the price-to-earnings ratio. Graham recommended paying no more than 25x average earnings over the past 7 years, or 20x earnings over the trailing 12 months.
Maintain a permanent bond allocation. Never go below 25% bonds or above 75% bonds. The default is 50/50. Adjust only in response to extreme market conditions.
1. Set bond/stock allocation (default 50/50)
2. Screen universe for defensive criteria (Section 6)
3. Select 10-30 stocks from passing list
4. Equal-weight or market-cap-weight the equity portion
5. Rebalance annually
6. Adjust bond/stock ratio only at extremes (see Section 8)
7. Resist all temptations to trade actively
The enterprising investor accepts additional work and complexity in exchange for the possibility of returns materially above the market average. This investor must possess analytical skill, emotional discipline, and — critically — the time to perform genuine security analysis.
Approach A: Net-Net Working Capital Bargains
The purest Graham strategy. Buy stocks trading below their net current asset value (NCAV) — that is, current assets minus all liabilities (both current and long-term). Such stocks are priced below liquidation value, offering an extreme margin of safety.
NCAV = Current Assets - Total Liabilities
Buy when: Market Cap < NCAV * 0.67 (33% margin of safety)
Graham's research showed that a diversified portfolio of net-nets, purchased mechanically and held for up to two years, produced average annual returns of approximately 20% over multi-decade periods.
Approach B: Low PE with Earnings Growth
Purchase stocks with PE ratios below 10 that also demonstrate positive earnings growth over the past five years. This combines cheapness with evidence that the business is not in secular decline.
Criteria:
PE ratio < 10
5-year earnings growth > 0%
Current ratio > 1.5
Positive earnings each of past 5 years
Approach C: Special Situations
Exploit corporate events — mergers, spin-offs, reorganizations, liquidations, tender offers — where a definable catalyst will unlock value within a known timeframe. Special situations offer returns that are partially decoupled from market direction, providing portfolio-level diversification benefits.
Graham-Newman Corporation allocated roughly one-third of its capital to special situations throughout its history, and this category contributed significantly to the fund's risk-adjusted outperformance.
Graham is equally explicit about what the enterprising investor should NOT do:
Graham provides seven specific quantitative criteria. A stock must satisfy ALL seven to qualify for the defensive investor's portfolio.
| # | Criterion | Specific Requirement |
|---|---|---|
| 1 | Adequate size | Revenue > $500M (adjusted for inflation) |
| 2 | Strong financial condition | Current ratio >= 2.0 |
| 3 | Earnings stability | Positive earnings in each of past 10 years |
| 4 | Dividend record | Uninterrupted dividends for past 20 years |
| 5 | Earnings growth | Minimum 33% increase in per-share EPS over 10 yrs |
| 6 | Moderate PE ratio | Current price <= 15x average earnings (3 years) |
| 7 | Moderate price-to-book | Price/Book <= 1.5 |
Graham later offered a combined test for criteria 6 and 7: the product of the PE ratio and the price-to-book ratio should not exceed 22.5. This allows some flexibility — a stock with PE of 9 and P/B of 2.5 (product = 22.5) would qualify even though P/B exceeds 1.5 in isolation.
Combined test: PE * (P/B) <= 22.5
Adequate size eliminates small companies vulnerable to competitive disruption, capital market access problems, and illiquidity. Large companies have more resources to survive downturns and more institutional research coverage (reducing information asymmetry).
Strong financial condition (current ratio >= 2.0) ensures the company can meet its near-term obligations without distress. For industrial companies, Graham also required that long-term debt not exceed net current assets.
Earnings stability (10 consecutive years of positive earnings) proves the business model works across varying economic conditions. A company that loses money in a recession may never recover.
Dividend record (20 years uninterrupted) demonstrates both financial strength and management discipline. Companies that sustain dividends through multiple recessions possess genuine earning power.
Earnings growth (33% over 10 years, approximately 3% annually) ensures the company is not stagnating. Even a defensive investor needs modest growth to offset inflation and maintain purchasing power.
Moderate PE (no more than 15x three-year average earnings) prevents overpayment. Graham observed that stocks purchased at high PE ratios were far more likely to deliver disappointing returns, even when the underlying businesses performed well.
Moderate price-to-book (no more than 1.5x book value) provides an asset-based floor for the investment. If earnings disappoint, the investor still owns tangible assets worth a meaningful fraction of the purchase price.
The most stringent and historically most profitable Graham screen:
Step 1: Calculate NCAV
NCAV = Cash + Short-term Investments
+ Accounts Receivable * 0.75
+ Inventory * 0.50
- Total Liabilities
Step 2: Compare to Market Cap
Buy if: Market Cap < NCAV * 0.67
Step 3: Diversify
Hold 20-30 net-net positions simultaneously.
No single position > 5% of portfolio.
Step 4: Rebalance
Sell after 2 years OR when price reaches NCAV, whichever comes first.
Replace with new qualifying net-nets.
Note: In Graham's original formulation, NCAV was simply current assets minus total liabilities without the haircuts on receivables and inventory. The adjusted version above is a more conservative modern adaptation that accounts for asset quality.
All criteria must be met:
Trailing PE < 10
5-year EPS growth > 0% per annum (compounded)
Current ratio >= 1.5
Long-term debt / net current assets < 1.0
Positive earnings each of past 5 years
Current dividend yield > 0%
Price / Book < 1.2
Before entering any special situation, the enterprising investor must verify:
Expected Return = (Deal Price - Current Price) / Current Price
Probability-Adjusted Return = Expected Return * P(success) - Loss_if_fail * P(failure)
Annualized = (1 + Probability-Adjusted Return) ^ (12 / months_to_close) - 1
Invest if: Annualized > 20%
Graham's asset allocation framework is deliberately simple:
Minimum bond allocation: 25%. Even in the most favorable stock market conditions, the investor maintains at least 25% in high-quality bonds. This reserve provides both emotional ballast and dry powder for stock purchases during panics.
Maximum bond allocation: 75%. Even in the most unfavorable stock market conditions, the investor maintains at least 25% in stocks. Equities provide long-term inflation protection that bonds cannot.
Default allocation: 50/50. When the investor has no strong conviction about market valuation, the equal split is the default.
| Market Condition | Stock Allocation | Bond Allocation |
|---|---|---|
| Stocks extremely overvalued (Shiller PE > 25) | 25% | 75% |
| Stocks moderately overvalued (Shiller PE 20-25) | 35% | 65% |
| Fair value range (Shiller PE 14-20) | 50% | 50% |
| Stocks moderately undervalued (Shiller PE 10-14) | 65% | 35% |
| Stocks extremely undervalued (Shiller PE < 10) | 75% | 25% |
Graham was specific about which bonds qualify:
Review allocation quarterly.
If stock allocation has drifted > 5% from target:
Rebalance by selling the overweighted class and buying the underweighted class.
If market PE has moved to a new zone (per table above):
Adjust target allocation accordingly, then rebalance.
Never rebalance more frequently than quarterly.
The Graham Number provides a quick upper-bound estimate of fair value for a stock, combining earnings and book value in a single calculation:
Graham Number = sqrt(22.5 * EPS * BVPS)
Where:
EPS = Trailing twelve-month earnings per share
BVPS = Book value per share
22.5 = 15 (maximum acceptable PE) * 1.5 (maximum acceptable P/B)
Company XYZ:
EPS = $4.00
BVPS = $30.00
Graham Number = sqrt(22.5 * 4.00 * 30.00)
= sqrt(2700)
= $51.96
If XYZ trades at $38.00:
Discount = ($51.96 - $38.00) / $51.96 = 26.9%
Passes initial screen (below Graham Number).
Proceed to full 7-criteria analysis.
If XYZ trades at $62.00:
Premium = ($62.00 - $51.96) / $51.96 = 19.3%
Fails screen. Do not purchase regardless of narrative.
Graham's buying criteria are entirely quantitative. Qualitative factors (management quality, industry outlook, competitive position) serve only as secondary confirmations, never as primary triggers.
Buy when ALL of the following conditions are met:
Graham provides clear, rules-based exit criteria:
Trigger 1: Fair Value Reached When the stock price reaches or exceeds the conservative estimate of intrinsic value, sell. Do not hold hoping for additional upside. The margin of safety has been consumed — the position is now speculative.
Sell if: Price >= Intrinsic Value Estimate
Trigger 2: Fundamentals Deteriorate If the company ceases to meet the original selection criteria — earnings turn negative, dividend is cut, financial condition weakens below thresholds — sell regardless of price. The thesis is broken.
Sell if: Any original buy criterion is violated
Trigger 3: Better Opportunity (Enterprising Investor Only) If a materially better bargain becomes available and the portfolio is fully invested, sell the position with the smallest remaining margin of safety to fund the new purchase.
Trigger 4: Time Limit (Net-Nets Only) If a net-net position has not appreciated to NCAV within 2 years, sell and redeploy the capital. Prolonged stagnation in a net-net may indicate a value trap.
For net-nets: Sell if holding_period > 24 months AND price < NCAV
Graham distinguishes sharply between risk and volatility. Volatility — the fluctuation of market prices — is not risk. True risk is the probability of permanent capital loss: buying a security at a price from which it never recovers to deliver a satisfactory return.
| Layer | Mechanism |
|---|---|
| Security level | Margin of safety on every individual purchase |
| Portfolio level | Diversification across 10-30 positions |
| Asset class level | Bond allocation provides non-correlated ballast |
| Behavioral level | Rules-based system eliminates emotional decision-making |
Defensive investor:
Max position size = 10% of equity allocation
Equal-weight preferred (each position = 100% / N stocks)
Enterprising investor (net-nets):
Max position size = 5% of portfolio
Equal-weight required
Minimum 20 positions
Enterprising investor (special situations):
Max allocation to special situations = 33% of portfolio
Max single situation = 10% of special situation allocation
Graham does not use:
Graham's most repeated message across the Collection is that the investor's chief problem — and worst enemy — is himself. Analytical skill is necessary but insufficient. Without emotional discipline, the best analysis leads to the worst outcomes because the investor abandons his own conclusions at precisely the wrong moments.
Independence of Thought The intelligent investor must form opinions based on facts and analysis, not on the opinions of others. Wall Street consensus, media sentiment, and social pressure are systematically unreliable guides. When the crowd is euphoric, the intelligent investor is cautious. When the crowd is despondent, the intelligent investor is buying.
Patience Graham's strategies require years, not weeks, to compound. The defensive investor may rebalance once per year. The net-net investor holds positions for up to two years. The margin of safety buyer may wait months for a qualifying purchase. Impatience leads to overpaying, overtrading, and underperforming.
Consistency Apply the same criteria to every stock, every time, without exception. The temptation to relax standards for a "great story" or a "once in a lifetime opportunity" is the most common gateway to losses.
Emotional Detachment Treat the portfolio as a business operation, not as a scorecard of personal worth. Temporary losses on individual positions are normal and expected. Only permanent capital loss (buying above intrinsic value, buying businesses that fail) constitutes genuine failure.
Before classifying yourself as a defensive or enterprising investor, Graham recommends honest self-assessment:
If you answer YES to ANY of the following, you are a defensive investor
regardless of your analytical skill:
- Have you ever sold a stock in panic during a market decline?
- Do you check your portfolio more than once per day?
- Do market fluctuations affect your sleep or mood?
- Have you ever purchased a stock because someone else was excited about it?
- Do you find it painful to hold a declining stock even when fundamentals are intact?
The most dangerous error. Graham draws a bright line: investing is an operation which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. Many investors who consider themselves conservative are, by Graham's definition, speculating — they buy stocks at high valuations based on projected growth without a quantitative margin of safety.
A high-quality company is not automatically a safe investment. Quality is a property of the business; safety is a property of the price. The finest company in the world, purchased at 40x earnings, offers no margin of safety and is therefore speculative.
Growth is the most commonly overvalued attribute in stock markets. Graham observed that investors systematically overpay for expected growth because: (a) growth rarely persists as long or as strongly as projected, (b) high-growth companies attract competition that erodes margins, and (c) the premium paid for growth eliminates the margin of safety needed to protect against inevitable disappointments.
Buying popular stocks, following analyst recommendations, chasing IPOs, and buying into thematic narratives are all forms of crowd-following. Graham's empirical work showed that popular stocks consistently underperformed unpopular ones over 5-10 year periods.
Graham regarded dividends as a critical signal of genuine earning power and management discipline. A company that does not pay dividends may be retaining capital productively — or it may be hiding the absence of real cash flow behind accounting earnings. The dividend requirement in his defensive criteria is not an arbitrary filter; it is a test of earnings quality.
Graham regarded market timing as a futile exercise for all but the most exceptional practitioners. Even his enterprising investor is a stock picker, not a market timer. The defensive investor's bond/stock rebalancing is the closest Graham comes to market timing, and it is driven by valuation levels, not forecasts.
Buying a stock based on earnings and PE alone, without examining the balance sheet, is like evaluating a house based on its paint job without inspecting the foundation. Graham's insistence on minimum current ratios and maximum debt levels eliminates companies that may be profitable today but are one recession away from insolvency.
Phase 1: Screening (January)
The defensive investor runs the seven-criteria screen and identifies Company ABC, a large industrial conglomerate:
Criterion 1 — Adequate size: Revenue = $12B PASS
Criterion 2 — Financial condition: Current ratio = 2.3 PASS
Criterion 3 — Earnings stability: 10/10 profitable yrs PASS
Criterion 4 — Dividend record: 22 consecutive years PASS
Criterion 5 — Earnings growth: EPS grew 41% / 10 yrs PASS
Criterion 6 — Moderate PE: 14.2x (3-yr avg EPS) PASS (< 15)
Criterion 7 — Moderate P/B: 1.4x PASS (< 1.5)
Combined test: 14.2 * 1.4 = 19.88 PASS (< 22.5)
Phase 2: Valuation and Margin of Safety
Graham Number = sqrt(22.5 * $5.20 * $52.00) = sqrt(6084) = $78.02
Current price = $58.00
Margin of Safety = ($78.02 - $58.00) / $78.02 = 25.7%
Assessment: Margin is below the preferred 33% but above 20%.
Acceptable for a diversified defensive portfolio.
Phase 3: Position Sizing and Purchase (February)
Portfolio value: $500,000
Stock allocation (50%): $250,000
Number of positions: 20
Target position size: $12,500
Shares purchased: 215 shares @ $58.00 = $12,470
Phase 4: Monitoring (Quarterly)
Q1 check: EPS on track, dividend declared, current ratio stable. HOLD.
Q2 check: Price declined to $51. Fundamentals unchanged. DO NOT SELL.
Margin of safety has increased. Consider adding if portfolio allows.
Q3 check: Earnings slightly below estimate. Still profitable. Dividend intact. HOLD.
Q4 check: Annual report confirms all seven criteria still met. HOLD.
Phase 5: Exit (Month 28)
Price has appreciated to $76.00 over 28 months.
Graham Number (updated): $80.50
Margin of Safety = ($80.50 - $76.00) / $80.50 = 5.6%
Assessment: Margin of safety is negligible. Stock is near fair value.
Action: SELL entire position.
Proceeds: 215 shares * $76.00 = $16,340
Dividends: 215 shares * $2.08 * 2.33 yrs = $1,041 (approx)
Total return: ($16,340 + $1,041 - $12,470) / $12,470 = 39.4% over 28 months
Annualized: approximately 15.8%
Phase 6: Redeployment
Screen for a new qualifying stock. Repeat the process.
Phase 1: Screening
Identify Company DEF, a small manufacturer trading far below liquidation value:
Current assets: $180M
Cash: $45M
Receivables: $80M
Inventory: $55M
Total liabilities: $95M
NCAV = $180M - $95M = $85M
Market cap: $48M
Discount to NCAV: ($85M - $48M) / $85M = 43.5% PASS (> 33%)
Phase 2: Purchase
Buy 2.5% of portfolio: $12,500 at $4.80/share = 2,604 shares
Set 24-month review date.
Phase 3: Resolution (Month 14)
Corporate raider accumulates stake, proposes buyout at $7.20/share.
Sell at $7.20: 2,604 * $7.20 = $18,749
Profit: $6,249 or 50.0% in 14 months
Annualized: approximately 39.7%
"The essence of investment management is the management of risks, not the management of returns."
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
"The intelligent investor is a realist who sells to optimists and buys from pessimists."
"The investor's chief problem — and even his worst enemy — is likely to be himself."
"In the short run, the market is a voting machine but in the long run, it is a weighing machine."
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."
"The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price."
"The best way to measure your investing success is not by whether you're beating the market but by whether you've put in place a financial plan and a behavioral discipline that are likely to get you where you want to go."
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks."
"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it — even though others may hesitate or differ."
"Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto: MARGIN OF SAFETY."
"The purpose of the margin of safety is to render unnecessary an accurate estimate of the future."
"The stock investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right."
"People who invest make money for themselves; people who speculate make money for their brokers."
"Those who do not remember the past are condemned to repeat it." (Graham frequently cited Santayana to remind investors that bubbles and crashes are cyclical, not exceptional.)
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BENJAMIN GRAHAM — QUICK REFERENCE
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DEFENSIVE INVESTOR CHECKLIST:
[ ] Revenue > $500M
[ ] Current ratio >= 2.0
[ ] 10 consecutive profitable years
[ ] 20 years uninterrupted dividends
[ ] EPS growth >= 33% over 10 years
[ ] PE (3-yr avg) <= 15
[ ] P/B <= 1.5 (or PE * P/B <= 22.5)
GRAHAM NUMBER:
GN = sqrt(22.5 * EPS * BVPS)
Buy below GN with 33%+ margin of safety.
NET-NET (Enterprising):
NCAV = Current Assets - Total Liabilities
Buy at < 67% of NCAV. Hold max 2 years.
ASSET ALLOCATION:
Stocks: 25% — 75% | Bonds: 25% — 75%
Default: 50/50
Shift based on market PE (Shiller).
SELL RULES:
1. Price >= intrinsic value
2. Fundamentals break buy criteria
3. Net-net: 24 months without reaching NCAV
4. Better opportunity (enterprising only)
NEVER:
- Buy PE > 20
- Use margin / leverage
- Follow tips, chase momentum
- Time the market
- Speculate while calling it investing
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