“Current price should not be more than 15 times average earnings of the past three years.”-
“Current price should not be more than 1.5 times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule of thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5. (This figure corresponds to 15 times earnings and 1.5 times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)”-
Unlike valuation methods such as DCF or Discounted Earnings, the Graham number does not take growth into the valuation. Unlike the valuation methods based on book value alone, it takes into account the earnings power. Therefore, the Graham Number is a combination of asset valuation and earnings power valuation. the Graham number is a very conservative way of valuing a stock. It cannot be applied to companies with negative book values.
Instability of private investment arising out of the behaviour of speculators and ‘amateur’ investors on the stock markets, where they wish to get rich quickly. Speculators are not long-term investors. A professional long-term investor would make a careful calculation of the prospective yield of a capital asset before making up his mind about whether to […]
Warren Buffett has said, value and growth “are joined at the hip.” See growth is always a component in the calculation of the intrinsic value of a stock. Sometimes growth is enormously important to the calculation of value. Sometimes it’s not important at all. Sometimes growth positively impacts value. Sometimes growth can negatively impact value. […]
Investing is a long-term journey You can think of investing as a long-term journey, a veritable marathon, with many starts, stops, changes of scenery and occasional bumps. Moreover, we believe you will be much more likely to achieve your investment objectives if you know what to expect along the way. Your own psychology and ability […]