I'm pretty positive that he would change the requirements.
You had to be there and be a Graham-type person at the time.
As I saw and see it, he had two interwoven objectives:
1. What are the best measures for the defensive and enterprising investors to use? "Best" in the sense of measures that screen purchase of stocks which might appreciate because they're undervalued, and yet that might also provide some sort of margin of safety. If a portfolio, say about 30 stocks were to be selected in a balance among stocks and bonds.
2. Given that I (Dr. Graham)want to provide a facile way for the average Joe investor to use some sort of screening mechanism to buy stocks, then from among the "best" measures that I know, what and how do I deselect to come up with measures that ARE available to the average investor, that he can screen for? It's not realistic here in 1976 that the average guy is going to send away to get and wade through piles of annual reports or buy SEC filings.
So, what this comes down to is this: Back in the day, we average Joe's got our S&P monthly stock guide (It was affordable at maybe $75-100/yr for a subscription) with the thousand or more companies listed alphabetically and by exchange - about 26 companies per page, all with just the same few metrics, and we just quickly started looking at each stock's metrics - current assets, total debt, p/e, five year history, etc. -- and we screened and made the simple calculations and decisions to find stocks that dropped into Dr. Graham's box.
Now, with the internet, very possible I'd say, that Dr. Graham would perhaps move much closer to you, Spekulatius, and others who use enterprise value/ebitda or other "sophisticated" and/or "better" screening tools that are so readily available in 2010 to the average investor. All those metrics Dr. Graham would be back-testing so as to come up with his latest requirements for the defensive and enterprising investors.
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Edit. After writing, and considering further, maybe I have it backwards all these years. I'm assuming Dr. Graham used S&P Guide numbers as a very important factor for the metrics he was recommending, and that what he provided additionally was the numerical number, i.e p/e was there, and Dr. Graham said, okay, no more than 7x; 5-year history was there, so Dr. Graham said, okay, no deficit in those last five years.
Possible though that I have it somewhat backwards: Perhaps S&P saw a bus. opportunity and said, Dr. G. likes p/e and five year history, etc., we'll just issue a stock guide that has only those metrics he likes. |
