Thursday, November 6, 2008

Benjamin Graham - I spanked Warren Buffet!

We found this article from briefing.com which wrote about one of Benjamin Graham's investment criteria and we thought it was a great idea to incorporate it into our investment strategy. This is a bloody stringent criteria to follow that would dramatically reduce the list of stocks we are looking at at the moment, but hey, if not now..then never, right?

Quote:One of Graham's investment fund strategies, as explained in his best-selling book The Intelligent Investor, was to buy stocks that are valued at a discount to their net current asset value. Graham called such stocks "bargain issues." In other words, Graham would look for stocks whose current assets less total liabilities was worth more than what the stock was trading at. This meant that any plant, property and equipment, goodwill and long-term investments were free.
Graham believed this approach lowers risk because if a company defaults, shareholders still stand to recoup their losses and possibly profit as the company is liquidated.
Since many companies that trade below their net current asset value have weak prospects, Graham would often have a portfolio of 100 such stocks to limit the impact of one company defaulting. Graham said that 90% of the bargain issues returned a satisfactory profit over 35 years.
Graham's investment fund, Graham-Newman Corp., returned 14.7% annually from 1936 to his retirement in 1956, versus the 12.2% return of the stock market, according to The Intelligent Investor (revised 2003 version). After 20 years, a $100 initial investment would have been worth $1,533.35 in Graham's fund, compared to $999.67 in the overall stock market.Unquote

SGDividends will now start combing the sphere of SGX shares to see whether there are any such stocks available trading below their net current assets per share. Stay tuned.






6 comments:

  1. C&G has long been traded at a deep discount to nett current asset (current assets less total liabilities). like your posts pretty much and am a regular reader, btw.

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  2. Hi Twinhills,

    Thanks for alerting us..We immediately went to look at C&G after hearing from you.:)

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  3. C&G is consistently undervalued, even in most bullish market condition.

    If a stock eternally undervalued by market, we shall ignore it?!

    Re-examine the broad market condition to study why it is consistently undervalued is more important.

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  4. Actually when we were doing a write up on sectors of SGX counters (www.sgsectorfundamentals.blogspot.com), we discovered that there are indeed many fabric or yarn chinese companies listing in SGX.

    Maybe as Invest SGX says, there might be a reason and it could be because it faces a fragmented, very competitive landscape in China.

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  5. just wanted to highlight that a deep discount to ncav doesn't necessarily mean a good investment and that's why it's called cigarette butt. giving C&G as an example was my intension to "throwing a brick to expect a jade in return" :) - looking forward to your findings on some more counters with better prospects.

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  6. I guess you could say that warren buffett got a lot of what he learned about stock investing from ben graham.

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