Adjusting the Benjamin Graham Enterprising Investor Screen
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
- 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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