A few months ago I finished reading “The Intelligent Investor” by Benjamin Graham. After eventually finishing the book, I decided it was time to start using some of Graham’s philosophies on my own portfolio- those that I understood, anyway. Basically, my interpretation of his method was first to look through and find stocks that have a low PE ratio (Price/Earnings) and a dividend.
If the stock met this, I looked at the PE ratio and recalculated it. I did this by taking the average price of the stock and its average earnings over the last three years. Assuming this test is passed, I looked through the annual report from the prior years on the hunt for one-time charges that appear year after year. A good dividend is also very important to me so I looked for a company that has continually provided one over the course of the last ten to twenty years. Preferably, the company should have a history of continuously moving up its dividend. The next step is to find a company whose price/book ratio is less than 1. Finally, I want to see how the company fared during the last economic downturn. My belief is that if I follow these steps I will do well over time.
My interpretation is that the market swings from overly optimistic to overly pessimistic and it is by sheer luck that a stock is fairly priced. So, for me, pessimism is a good thing. So, from this point onwards, I am going to go through my interpretation of individual stocks as well as my impressions of the economy in general. It is my hope to have some great discussions that will help us all in navigating stocks.
No comments:
Post a Comment