Saturday, 29 August 2015

Here is a Ben Graham Checklist for Finding Undervalued Stocks

Criteria:

Valuation
Risk
1. Earnings to price (the inverse of P/E) is double the high-grade corporate bond yield. If the high-grade bond yields 7%, then earnings to price should be 14%.
2. P/E ratio that is 0.4 times the highest average P/E achieved in the last 5 years.
3. Dividend yield is 2/3 the high-grade bond yield.
4. Stock price of 2/3 the tangible book value per share.
5. Stock price of 2/3 the net current asset value.

Quality of Balance Sheet and Management
Financial strength
6. Total debt is lower than tangible book value.
7. Current ratio (current assets/current liabilities) is greater than 2.
8. Total debt is no more than liquidation value.

Quality of Growth
Earnings stability
9. Earnings have doubled in most recent 10 years.
10. Earnings have declined no more than 5% in 2 of the past 10 years.

If a stock meets 7 of the 10 criteria, it is probably a good value, according to Graham.
If you're income oriented, Graham recommended paying special attention to items 1 through 7.

If you're concerned about growth and safety, items 1 through 5 and 9 and 10 are important.

If you're concerned with aggressive growth, ignore item 3, reduce the emphasis on 4 through 6, and weigh 9 and 10 heavily.

Again, these checklists are a guideline and example, not a cookbook recipe you should follow precisely

They are a way of thinking and an example of how you may construct your own value investing system.

The criteria mentioned above are probably more focussed on dividends and safety than even today's value investors choose to be. But today's value investing practice owes an immense debt to this type of financial and investment analysis.

Spreadsheet for finding Undervalue Stocks
http://spreadsheets.google.com/pub?key=tZGNWHLD2d2nTgCcxSKyoCA&output=html

If you're income oriented, Graham recommended paying special attention to items 1 through 7.

Criteria:

Valuation
Risk
1. Earnings to price (the inverse of P/E) is double the high-grade corporate bond yield. If the high-grade bond yields 7%, then earnings to price should be 14%.
2. P/E ratio that is 0.4 times the highest average P/E achieved in the last 5 years.
3. Dividend yield is 2/3 the high-grade bond yield.
4. Stock price of 2/3 the tangible book value per share.
5. Stock price of 2/3 the net current asset value.

Quality of Balance Sheet and Management
Financial strength
6. Total debt is lower than tangible book value.
7. Current ratio (current assets/current liabilities) is greater than 2.
8. Total debt is no more than liquidation value.

Quality of Growth
Earnings stability
9. Earnings have doubled in most recent 10 years.
10. Earnings have declined no more than 5% in 2 of the past 10 years.


If you're concerned about growth and safety, items 1 through 5 and 9 and 10 are important.


Criteria:

Valuation
Risk
1. Earnings to price (the inverse of P/E) is double the high-grade corporate bond yield. If the high-grade bond yields 7%, then earnings to price should be 14%.
2. P/E ratio that is 0.4 times the highest average P/E achieved in the last 5 years.
3. Dividend yield is 2/3 the high-grade bond yield.
4. Stock price of 2/3 the tangible book value per share.
5. Stock price of 2/3 the net current asset value.

Quality of Balance Sheet and Management
Financial strength
6. Total debt is lower than tangible book value.
7. Current ratio (current assets/current liabilities) is greater than 2.
8. Total debt is no more than liquidation value.


Quality of Growth
Earnings stability
9. Earnings have doubled in most recent 10 years.
10. Earnings have declined no more than 5% in 2 of the past 10 years.


If you're concerned with aggressive growth, ignore item 3, reduce the emphasis on 4 through 6, and weigh 9 and 10 heavily.

Criteria:

Valuation
Risk
1. Earnings to price (the inverse of P/E) is double the high-grade corporate bond yield. If the high-grade bond yields 7%, then earnings to price should be 14%.
2. P/E ratio that is 0.4 times the highest average P/E achieved in the last 5 years.
3. Dividend yield is 2/3 the high-grade bond yield.
4. Stock price of 2/3 the tangible book value per share.
5. Stock price of 2/3 the net current asset value.


Quality of Balance Sheet and Management
Financial strength
6. Total debt is lower than tangible book value.
7. Current ratio (current assets/current liabilities) is greater than 2.
8. Total debt is no more than liquidation value.

Quality of Growth
Earnings stability
9. Earnings have doubled in most recent 10 years.
10. Earnings have declined no more than 5% in 2 of the past 10 years.

Source: http://myinvestingnotes.blogspot.co.uk/

10 Greatest Speculative Economic Bubbles in History

An economic bubble is a very special financial term, generally known to average citizens. We all remember some interesting examples of financial bubbles from our history and economic lessons, such as Tulip Mania, where prices for tulips grew so inflated in the 17th century Holland, that people would sell their houses and livestock, to possess a bulb for a few days, with the intent to sell it for higher price in a short time frame. This rudimentary derivatives market worked great for a time, until, well, people realized, that the trading doesn't have any sound reasoning and some just refused to honor their contracts, resulting in the rows of bankruptcies. This economic fiasco ended the Dutch golden age, leading the economy into recession.

And there are some market bubbles, that have occurred only recently and is not just a funny legend, that we remember, but have probably left an impact on our wallet, as well as our mind, such as the US Sub Prime Mortgage Crises. Take a look at the infographic, designed to you by Infographic Design Services that illustrates all the famous economic bubbles in history, describing their causes, development and results for the economies.



10 Greatest Economic Bubbles in History #infographic





Source: http://www.visualistan.com/

Quote for the day

“Tight congestions in which a breakout occurs for reasons that nobody understands are usually good risk-reward trades.” - Bruce Kovner