Benjamin Graham, the godfather of value investing and Warren Buffett's mentor, has a secret formula on value investing.
The Graham Number:
Fair Value of a Stock = Square Root of (22.5) x (Earnings Per Share) x (Book Value Per Share)
The math of the Graham number is relatively straightforward. Graham believed that the price-to-earnings (P/EPS) ratio should be no more than 15. He also believed that the price-to-book value (P/BVPS) ratio should be no more than 1.5.
From that, Graham proposed that -- as a rule of thumb -- the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5.
Read more on Graham Number here.
Subscribe to:
Post Comments (Atom)
-
Forbes named Singapore Prime Minister wife and CEO of Temasek Holdings, Ho Ching, as the 5th most powerful woman in the world . Ho Ching is ... -
Installed FortiClient recently but the challenge in disabling the application/service from running automatically on every start-up annoyed m...
-
If you have never heard of the case of Cambridge Analytica with Facebook, then you must be living in some cave. Ever since the scandal was... -
To coincide with the current movie screening of Disney's Dumbo, I present you the main song for Dumbo. Enjoy! Lyrics Baby mine, do...
-
I'm not trying to be anyone saviour. I'm just trying to think about the future and not be sad.
No comments:
Post a Comment
Do provide your constructive comment. I appreciate that.