UNIVERSITY CONNECT::REVIEWING THE INTELLIGENT INVESTOR THE DEFINITIVE BOOK ON INVESTING,BY BENJAMIN GRAHAM

Benjamin Graham’s “The Intelligent Investor” has timeless principles with an unquestionable accuracy and most importantly they contain a sound intellectual framework within, which has been tested by decades of experience as an investor.

According to Warren Buffet “The Intelligent Investor” is the “greatest book on investing ever written”. What pulled my focus most were the unforgettable seven tests prescribed by Benjamin Graham in Chapter 14, Stock Selection for the Defensive Investor.

What made them unforgettable for me is the fact that each on of them help an investor filter out the speculative stocks which are prone to price manipulation from a conservative and value oriented portfolio. These are focused on long term passive investors who look forward to long term wealth appreciation instead of short term speculative or momentum oriented gains.

<<DOWNLOAD OTHER  NICE BOOKS HERE::PDF>>

1. Adequate Size of the Enterprise: Smaller companies are susceptible to greater price fluctuations while larger ones are comparatively much more stable. In 1970, Graham suggested that an industrial company should have annual sales of at least $100 Million while a service or utility oriented company should have no less than $50 Million in total assets. If we were to adjust these numbers for inflation, in today’s time they would represent about $450M and $200M, respectively.
2. Strong Financial Condition: According to Graham, a stock should have a current ratio of at least 2 while the long term debt should never exceed the company’s working capital. The debt on the company’s books should not exceed twice the company’s book value. This has been one of my most favorite aspects as this acts as a buffer under the possible scenarios of bankruptcy or insolvency of the business.
3. Stable Earnings: The company should not have reported a net loss over the past ten years of operations. Companies which can maintain net earnings over such time horizons are certainly much more stable.
4. Dividend: Companies should be paying dividends to its shareholders over its common stock for at least the past twenty years. This shows consistency and provides assurance and future dividends are more likely to be paid as well.
5. Earnings Growth: To help ensure a company's profits keep pace with inflation, net profits should have increased by one-third or greater on a per-share basis over course of the past ten years using three-year averages at the beginning and end.
6. Moderate P/E Ratio: For a conservative long term portfolio the companies market price should not exceed fifteen times its earnings for the past three years. This keeps the investor safe from overpaying for the security.
7. Moderate Price to Assets: Quoting Graham, "Current price should not be more than 1 1/2 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 1/2 times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)"

<<TOP 5 BOOKS THAT CHANGES YOUR LIFE,YOU MUST READ.>>

Benjamin Graham's Intelligent Investor should be a required read for any investor. Within its pages are multitudes of facts and information that will provide you with an excellent foundation of investment knowledge and wisdom, and arm you with the necessary skills to unravel the complexities of investment valuation and analysis.

The above mentioned seven tests are for Defensive Stock Selection for a Conservative Long Term Portfolio.