Ben Graham's Ten Points

Executive Summary

Joshua Lindsay

                  When trying to decide which project to do I focused on something that I could use to talk to employers about that they would find relevant and impressive. I talked to Professor Allen about my interests in finance and how I was looking for a job as an analyst when I graduated. He then suggested that I take the first project we did in this class, the Fallen Angel by Ben Graham, and expand upon that to measure a stock based on all ten hurdles that Graham uses to evaluate whether a stock is a good investor pick or not. I became more interested in Ben Graham’s ten hurdles after reading about when backtesting stocks, evidence shows that concentrating on stocks that meet just 2 or 3 of these hurdles can produce favorable results.

                  This project will use information publicly available to calculate whether it passes or fails each hurdle in order to judge the value of investing in that stock. Below is listed each of Ben Graham’s Ten Points used within this project, followed by a brief description on how that figure is calculated.

Ben Graham’s Ten Points

1. An earnings-to-price yield of twice the triple-A bond yield.
2. A price/earnings ratio down to four-tenths of the highest average P/E ratio the stock reached in the most recent five years.
3. A dividend yield of two-thirds of the triple-A bond yield.
4. A stock price down to two-thirds of tangible book value per share.
5. A stock price down to two-thirds of net current asset value - current assets less total debt.
6. Total debt less than tangible book value.
7. Current ratio (current assets divided by current liabilities) of two or more.
8. Total debt equal or less than twice the net quick liquidation value as defined in No. 5.
9. Earnings growth over the most recent ten years of seven percent compounded - a doubling of earnings in a ten-year period
10. Stability of growth in earnings - defined as no more than two declines of five percent or more in year-end earnings over the most recent ten years.

• http://files.gove.net/shares/files/12f/joshuar2/FinalPaperJoshuaLindsay.pdf
• http://files.gove.net/shares/files/12f/joshuar2/ProjectFinalJoshuaLindsay.xlsm