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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (4975)	9/6/1998 10:17:00 PM
From: peter michaelson	Respond to of 78595

Paul: Was that my post re SEEC, which sells below (cash less debt)? peter

To: Paul Senior who wrote (4975)	9/6/1998 10:45:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 78595

Your implication is that Graham advocated investing in any net-net he could get his hands on, so any further research or criteria for quality companies is somehow "censoring" the list (your word). If its a net-net, add it to your basket. Time to go back and read Graham again. What he actually said was buy net-nets which also met several other criteria. 1) Debt/Equity less than 1:1 2) 10 year earnings growth > 7% 3) A dividend yield greater than 2/3 of the AAA bond yield 4) A current ratio greater than 2:1 You won't find anything like this today, so whatever we do is bastardizing Graham in this market. In the first chapter of the Intelligent Investor, he tells you exactly what to do in a market like this - be at least 75% in bonds. I fully acknowledge that my Graham picks would not have passed these tests. Graham probably would not have advocated buying Penobscot Shoe or Hyde, because he would have been out of the market. (Who knows, if he were still alive today he may have been so old and senile he would own Amazon.) Nothing in the U.S. would now, though I bet you could find more than a few in Japan. But let's make sure we all understand what Graham actually wrote before we start debating how to apply it today. And also recognize that these criteria are purist Graham circa 1935, when half the market probably traded at net-net valuations. Even he gradually relaxed his methodology over the years. I find it very productive to break out my Graham books, my Buffett annuals, and my Lynch books every so often and refresh my own methodology, which is essentially a combination of the three. I've got my copies so underlined and scribbled on that I can find the meat in them very quickly. I start developing bad habits, and like to go back and see what I have forgotten. Often when I go back to the basics I realize I have been straying from where I want to be. Jim