Value Investing 101

Quickly construct a portfolio using the 17-rule framework of Benjamin Graham, Warren Buffett's mentor.

Definitions

Graham recommended three grades of stocks — Defensive, Enterprising, and NCAV (or Net-Net) — in The Intelligent Investor, and 17 rules to identify them.

The Quick Reference describes Graham's rules, and all other terms used on Serenity.

Screeners

Serenity has two Graham screeners — Classic and Advanced.

The Classic Graham Screener is free and does not limit ungraded Graham Numbers and NCAVs, but limits Intrinsic Values to 70%. The Advanced Graham Screener though, has no such restriction.

At today's bond yields, completely Defensive and Enterprising grade Graham stocks require Intrinsic Values of 70% or higher.

Grades

a. Defensive

The following links will open the screeners preloaded with stocks that clear Graham's 8 rules for Defensive Industrials.

The following link will open the Advanced Graham Screener preloaded with stocks that clear Graham's 7 rules for Defensive Utilities and Financials. These rules are an advanced customization of the core Defensive rules, and so not supported by the free Classic Graham Screener.

Utilities & Financials

Graham recommended not more than 10% of one's portfolio per Defensive grade stock. Thus any ten (or more) stocks from these two lists combined will allow us to construct a complete Defensive Graham portfolio.

b. Enterprising

The following links will open the screeners preloaded with stocks that clear Graham's 7 rules for Enterprising investment.

Serenity recommends not more than 5% of one's portfolio per Enterprising grade stock. Thus any twenty (or more) stocks from this list will allow us to construct a complete Enterprising Graham portfolio.

c. NCAV

The following links will open the screeners preloaded with stocks that clear Graham's 2 rules for NCAV (or Net-Net) investment.

Graham recommends not more than 3.3% of one's portfolio per NCAV grade stock. Thus any thirty (or more) stocks from this list will allow us to construct a complete NCAV Graham portfolio.

Diversification

Graham's framework is designed for building a complete portfolio, and not for picking individual stocks.

So — as an example — one could distribute 100% of one's capital across five Defensive stocks (5x10%=50%), six Enterprising stocks (6x5%=30%), and six NCAV stocks (6x3.3%=20%)

Warren Buffett wrote the following about Graham's investment framework in 2008.

"My intellectual odyssey ended, however, when I met Ben and Dave, first through their writings and then in person. They laid out a roadmap for investing that I have now been following for 57 years. There’s been no reason to look for another."
Warren Buffett, in his 2008 foreword to Graham's book Security Analysis (Dave Dodd was Ben Graham's co-author).

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