Value Investing - Annual Data or Quarterly Data?

The encyclopedic investment framework of Benjamin Graham — Warren Buffett's mentor — is based on annual data. Interim financial statements are also generally unaudited.

Graham's Framework

The Value Investing framework of Benjamin Graham — Warren Buffett's mentor — is based almost completely on annual data. The Graham Number requires the average EPS of the past three years, Earnings and Dividends are checked over periods of 5-20 years, and so on.

Thus, once a stock is evaluated against Graham's framework using its annual data, it does not need to be reevaluated every quarter. A full Graham analysis is valid for a minimum of one year; and often stays valid for much longer. Drastic changes are highly unlikely in a correctly diversified Graham portfolio.

Interim Statements - Unaudited

Interim financial statements are also generally unaudited, and do not adhere to accounting standards such as GAAP as strictly as the annual ones do.

Therefore, analyses by Serenity are done almost exclusively with annual data; the only exception being the NCAV Graham Grade which requires a positive EPS (TTM).

Regular Data Updates

However, different companies release their Annual Results at different times of the year. So Serenity's database is updated every couple of weeks, reflecting the latest Annual Financial Data and EPS (TTM) for all stocks available at any given time.

Stock Price Updates

Graham's investment framework is also unique in that it possibly is the only comprehensive framework in which the stock price is central to the final analysis.

So when a stock's price changes on Serenity, it doesn't just change the displayed price but several other values as well; including — potentially — the very Graham Grade of the stock. Essentially, every stock price change on Serenity requires a completely fresh analysis of the entire company's financials.

Also, for Serenity to present an accurate list of current Graham stocks, it has to analyze the entire market; and not just a few displayed stocks. Therefore, all stock prices on Serenity are updated cyclically every 2-3 days.

Long-Term By Design

Value Investing is a long-term activity by design. Graham's framework includes multiple rules for quality and diversification. These rules ensure that an investor always errs on the side of caution, and that even the occasional misstep has no significant effect on one's portfolio.

But stocks are usually valued by the general market based on their expected results, and not their current status. So a stock that's undervalued is quite possibly so because of an overreaction to expected bad news ahead.

Therefore, short-term changes in a stock's grading need not be taken too seriously; as Graham explains below. Graham also gives detailed instructions on when to sell a stock.

"Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies’ performance like a hawk; but he should give it a good, hard look from time to time."
Benjamin Graham, Chapter 8: The Investor and Market Fluctuations, The Intelligent Investor

Graham Resources