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Number Cruncher

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Number Cruncher

Value investor guru's strategy still works Add to ...


Back in September, 2008, just before the stock market fell off a cliff, we created a virtual portfolio of U.S. stocks based on the strategy of Benjamin Graham, the late, great value investor. Our timing could not have been worse, and our portfolio paid a steep price - at least initially.

But as you'll see, our stocks have recovered all of their losses and then some, even as the S&P 500 remains under water over the same period.


Mr. Graham, who cut his teeth during the Great Depression, aimed to buy stocks at a discount to their "intrinsic value." In his widely praised book, The Intelligent Investor , he recommended focusing on companies with little debt, a long history of uninterrupted dividend payments and relatively low price-to-earnings ratios.


We used the Graham Value Investor screen developed by Validea.com. The screen looks for companies with the following attributes:

Current assets must be at least double current liabilities, and long-term debt must not exceed net current assets (current assets minus current liabilities);

Earnings per share must have grown by at least 30 per cent over the past 10 years (we're referring here to total earnings growth, not an annual average);

The company must not have posted a loss in any of the past five years;

The current price/earnings ratio and the P/E based on average earnings of the past three years must be 15 or less;

The price-to-book ratio multiplied by the P/E must be less than 22.


We ran the screen on Sept. 12, 2008, just in time to watch our stocks plunge in value. But the market recovery has been good to our portfolio, which is up 7.5 per cent in U.S. dollars from the day we bought it. That handily beats the S&P 500, which is down 9.2 per cent over the same period. In Canadian dollars, our portfolio is up about 5.4 per cent.

As Mr. Graham would say, the results are "quite satisfactory."

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