Adjusting the Benjamin Graham Enterprising Investor Screen
by John Bajkowski
Since 1934, the works of Benjamin Graham have helped to guide individual and professional investors in their quest to make good investment decisions.
Graham’s intrinsic value approach grew out of the lessons learned from the stock market crash of 1929. Rather than trying to beat the market by seeking the best companies in the hottest industries, Graham argued that it is safer to build a portfolio of undervalued stocks that are being ignored or discriminated against by the market. Graham’s approach focused on the concept of an intrinsic value that is justified by a firm’s assets, earnings, dividends and financial strength.
In this article
- The Enterprising Investor Screen
- Managing the Portfolio
- Performance
- Profile of Passing Companies
- Graham in Summary
- What It Takes: Graham Enterprising Investor Revised Criteria
- The AAII Stock Screens
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Graham’s philosophy continues to flourish through two primary books: “Security Analysis,” co-authored with David Dodd, and “The Intelligent Investor.” “Security Analysis” was first released as a college investment textbook back in 1934 and was most recently revised in 2008 (sixth edition, McGraw-Hill). “Security Analysis” presents the investment process by covering the analysis of the economy, sectors and industries, financial statements, and bonds and stocks. “Security Analysis” is still used as a textbook at Columbia Business School.
“The Intelligent Investor” was first released in 1949 and is geared toward the individual investor. Graham periodically updated the book until his death in 1976. “The Intelligent Investor” has been revised a number of times since, with additions by Warren Buffett and Jason Zweig, most recently in 2003 (revised edition, Collins Business). The book presents Graham’s basic philosophy of holding a mix of bonds and stocks and selecting stocks for both the “defensive investor” and the “enterprising investor.”
Graham’s contrarian view dictates that stocks will appear most attractive when they are relatively unpopular with the market. The selection process takes great conviction and discipline because the momentum of the market will seemingly be against the investor and there may be no clear indication as to when the market will come around and agree with you. However, the possibility of extraordinary gains only exists when the investor disagrees with the market.
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Discussion
Why dont you hold these 4 stocks in the model
shadow stock portfolio?
posted 5 months ago by Oscar Botero from Florida
OK, nice update, next lets consider what Ben would have learned from the current "Great Recession" and apply this to your next rev. of the master's work.
posted 5 months ago by Robert Sturgis from Texas
How can the Benjamin Graham Enterprise Investor Screen (buy low valuation stocks and bonds) by applied to ETF and Mutual Funds?
posted 5 months ago by Ferdinand Wieland from Delaware
The two microcap stocks (DIT & FRD) that passed the Graham Enterprising screen have current price-to-book-value ratios just above the current cut off (p/book of 0.8) for a new stock to be added to the Shadow Stock Portfolio. They are in the hold range for the Shadow Stock portfolio with a p/book between 0.8 and 2.4.
posted 5 months ago by John Bajkowski from Illinois
Will these revised criteria be used in the monthly updates of the Graham Enterprising Investor stock screen?
I noticed the stock screens section of the web site still shows the "old" criteria and passing company.
posted 5 months ago by Craig Wallin from Washington
Thanks for spending time working on the Graham Enterprising screen. I have a couple of modified versions that I use because of the potential returns. I pay more attention to the Graham screens than any of the others due to the long term performance and simple, clear criteria.
posted 5 months ago by MT Bowling from Texas
Thanks for your efforts to improve upon and already proven,valuable tool
I praise AAII for its steadfast efforts to provide the small independent investor sound advice.
posted 4 months ago by John Schott from Florida
What concerns me about some of the stock screens, including this one, is that the bid/ask spread is so wide for some stocks. That is not taken into account in the screen performance so the returns are not realistic. Even if you trade in an IRA w/very low cost trading you cannot overcome that problem. Why report these results if they are not reproducible in the real world?
posted 4 months ago by Gary Stadtmauer from New York
I get all of the S&A newsletters (updates and issues, and special reports), and I don't see much in the AAII information that can provide more than what I am already getting. I am a lifetime AAII member.
posted 2 months ago by David Thompson from California
