Business

This 73-year-old investment strategy still works today


Like us bring 2022 out of misery, I’m rethinking what worked and what didn’t work this year. There are many that do not.

One area that has been modestly successful is a monitor that I have used for many years based on Benjamin Graham’s “Stocks for the Defensive Investor” which he presented in his 1949 masterpiece. . Smart Investor. I made some modifications to that screen—for one thing, because of inflation—but 73 years later, the principles still hold:

  • Appropriate size. A company must have at least $500 million in revenue on a 12-month basis. (Graham used a minimum of $100 million and total assets of at least $50 million.)
  • Strong financial conditions. A company must have a current ratio (current assets divided by current liabilities) of at least 2.0. It must also have less long-term debt than working capital.
  • Stable income. A business must have had positive earnings for the past seven years. (Graham used the 10-year minimum.)
  • Dividend record. The company has paid dividends for the past seven years. (Graham asked for 20 years.)
  • Income growth. Earnings must have increased at least 3% compounded annually for the past seven years. (Graham is required to increase earnings per share by a third in the last 10 years.)
  • The price-to-earnings (P/E) ratio is moderate. A stock must have an average P/E of 15 or less over the past three years.
  • Moderate ratio of price to asset. The price-to-earnings ratio multiplied by the price-to-book ratio must be less than 22.5.
  • No utility or retailer

When I run that screen in May, 10 names were shortlisted. Since then (excluding dividends) that group, including Intel (INTC), Winnebago (WGO), Johnson Outdoors (PARTICIPATION), Reliance Steel & Aluminum (RS), Commercial Metals (CMC), Encore Wire (WIRE) , Preformed line products (PLPC) , Group of Senior Companies (SGC), Mueller Industry (MLI), and Amcom Distribution (DIT) rose an average of 4.5% (excluding dividends) — outperforming the S&P 500 (-2.8% loss) and the Russell 2000 (up 1.8%). A close win, for sure. Interestingly, INTC (down 39%) was the worst performer.

I ran that screen again in Julyand the original 10 from May remained in the qualifiers and were joined by Sturm, Ruger & Co. (RGR) , Evercore Inc. (EVR) and Nucor Corp. (NO) . Since that screen ran, 13 names have gained an average of 3.3%, outperforming the S&P 500 (down 3.5%) and Russell 2000 (down 3.9%). Again, not a fiery but decent victory.

Running the same screen on Friday morning showed 15 names – that’s probably the most I’ve seen in the ten years I’ve run this screen. Newcomers include Hunters (HUNDRED), Korn Ferry (KFY), Worthington Industry (JOB), Standard motor products (SMP), and Insteel Industries (IIN) . INTC, RS and SGC fell.

I will run the screen again at the end of the year and watch the qualifiers for the whole year, until 2023.

Get an email notification every time I write an article about Real Money. Click “+Follow” next to my name for this post.

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button