There is a surprisingly common misconception that Graham recommended investing in stocks using the formula:
V = EPS x (8.5 + 2g), or
Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)
A quick online search for "Benjamin Graham Formula" will bring up dozens of analysts, websites and stock screeners recommending stocks using this wrong formula. In fact, it is more popular than the actual 17 calculations given by Graham for stock selection, probably because it is easier to use.
What Graham Actually Wrote
Graham was completely against any kind of Charting/Technical Analysis/Forecasting. He always analyzed stocks based on past performance and wrote entire chapters on stock selection. This formula is not mentioned anywhere in them.
He only mentions this formula to show how unrealistic the market's growth expectations are, when seen retrospectively.
A few paragraphs after mentioning this formula, he writes:
"Warning: This material is supplied for illustrative purposes only, and because of the inescapable necessity in security analysis to project the future growth rate for most companies studied. Let the reader not be misled into thinking that such projections have any high degree of reliability or, conversely, that future prices can be counted on to behave accordingly as the prophecies are realized, surpassed, or disappointed."
There is even a footnote in the original 1973 edition of The Intelligent Investor (click on the image to see a scan) to clarify that this equation does really give any "true value."
This footnote is missing in more recent editions of the book (it's now in the "Endnotes" section which is possibly the cause of the confusion). But the warning is present in the new editions too.
The irony of this entire story is that the very formula with which Graham meant to show how unreliable market forecasts and earnings forecasts were, is the formula recommended the most today as the "Benjamin Graham Formula"!
There is perhaps good reason why Graham's protege and most famous student, Warren Buffett, said "beware of geeks bearing formulas."
To assess 5000+ NYSE and NASDAQ stocks today against the 17 rules that Graham actually specified for stock selection, please see: