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

To: Paul Senior who wrote (5493)	12/19/1998 10:51:00 PM
From: cfimx	Read Replies (2) \| Respond to of 78661

>>the point that there are no fund managers who strictly follow Graham's methods. I'm not sure we can even agree on exactly what those methods are<< But Paul, didn't you say in another post that these were his methods? >>>On this, the Ben Graham value thread, it's entirely reasonable to assume that I and others would be trying to use Ben Graham's methods to the extent I/we understand them and that they apply to today's world. Thus, IMO there are two recommended methods for valuing stocks (per B. Graham, FAJ, 1976): the first is the "more limited technique of purchasing common stocks at less than their working-capital value" and the second, which "...consists of buying groups of stocks at less than their current or intrinsic value as indicated by one or more simple criteria. The criterion I (Ben Graham) prefer is seven times the reported earnings for the past 12 months. You can use others - such as a current dividend return above seven per cent or book value more than 120 per cent of price, etc. We are just finishing a performance study of these approaches over the past half-century - 1925-1975. They consistently show results of 15 per cent or better per annum, or twice the record of the DJIA for this long period. I have every confidence in the threefold merit of this general method based on (a)sound logic, (b) simplicity of application and (c) an excellent supporting record. At bottom it is a technique by which true investors can exploit the recurrent excessive optimism and excessive apprehension of the speculative public." <<< >>HOWEVER, when you actually look at stocks he (Sanborn) says he is buying or has bought recently-- they are, from what I can tell, nothing Ben Graham might take objection to << This may be TRUE...but these stocks certainly don't come close to fitting Graham's criteria as you and he spell it out. >>My list from a recent Barron's article on Sanborn: Nabisco, MO, BA, Nike, Mattel, Black & Decker, Washington Mutual. (Probably could find some others if I checked Morningstar). But aren't these awfully close to being Graham stocks anyway? Or Graham-Value stocks?<<< By your definition, they are certainly NOT Graham style stocks in any way shape or form. They are more like Buffet stocks. And how could they be both Paul? >>and I am saying I see nothing in these stocks that is so un-Grahamlike? << Hmmm. Paul, you like to have your cake and eat it too, don't you? >>So what's with his stated methods? << I gave you an inkling Paul in my last post but here is a refresher from the interview. Sanborn: "Given that we have a long-term time horizon, we then have five guidelines. The first is the most important. We like to buy stocks at 60% or less of their underlying value. We define underlying value as the value of the business to an owner who is going to own it forever and who understands the business perfectly. One way we use to get at that value is to look very carefully at transactions involving similar companies. We never look at price/earnings ratios, and we don't care about dividend yields or price/book ratios because none of those are relevant to what a business is worth to an owner." How do you think old Ben would cozy up to that last sentence Paul? >>Lost it here -- can't tell if I am agreeing with you or disagreeing with you.<< On THAT we CAN agree Paul!<g> PS: Paul, you don't drive a car from 1976, do you?