Wednesday May 25, 2022

A careful investor should choose only quality bonds

A prudent investor should exclude from his portfolio the shares of a company that has not reported profit growth in recent years. Although if the share price is very low, the share tax could qualify into a group of appropriate variability.

It is time to look at the application and methods of analysis of valuable beams. Since we have generally described it as an investment strategy recommended for our two categories of investors, it would now be wise for us to show us how the analysis of valuable beams comes into play so that we can implement the formulated strategies in practical investment life. A careful investor, only with our recommendations, will buy only high quality bonds and a diversified portfolio of major common stocks. It should also make sure that the price, the salary for the shares, is not high in terms of the methods used.

In the series of books from the book of the most important investment advisor of the 20th century, learn from the most dedicated “investment guru” how to avoid these mistakes as an investor, broker or investment advisor and how to implement long-term investment strategies.
Even with a degree in economics or finance, Benjamin Graham soon became not only a full-fledged investor and portfolio manager, but also a leading theorist. If a number of things that are written in finance, often after a few months and even weeks a little stupid, Graham’s principles published many decades ago seemed to be more likely to go a long way in the truth and truth

When creating such a diversified portfolio, the investor can proceed in two ways, either to create a portfolio of the DJI index type or a quantitatively tested portfolio. In the first case, under fact, despite the main shares of the market, it will only contain both the popular growth of the company, their shares are sold at particularly high levels, as well as less popular, and therefore cheaper titles. The easiest way to achieve this is to take the same number of each of the thirty events in the Dow Jones Industrial Index. 10 shares of each company at an average index of 900 points will represent an investment of $ 16,000. On the basis of historical results, it could then expect approximately the same results as if it had shared the shares of several representative investment funds.

The second method will be to define and apply certain criteria for each purchase to ensure that it achieves (1) a minimum level of quality of historical performance and financial stability of the company and (2) a minimum quantity in terms of earnings per share and ethical value (ie assets) per share. It is possible to look in more detail at the seven qualitative and quantitative criteria recommended for the selection of common actions.

  1. Corresponding (sufficient) size of the company
    All minimum values ​​must be determined on the basis of our own statement, which applies especially to the criterion of the size of the company. The aim of this criterion is to exclude small companies from the selection, their shares may be exposed to not very average fluctuations, especially in the industrial sector. (In these companies, however, there are a number of interesting intrigues, but in our opinion, these companies are not suitable for a prudent investor.) services.
  2. Get a strong financial position
    In the case of industrial enterprises, fixed assets should hold short-term bonds for at least two times, which means that current liquidity should be no more than two. Also, long-term external resources should not be higher than the value of certain current assets (or working capital). In the case of utilities, long-term external resources should not hold the company’s own capital (including values) for more than twice.
  3. Profitability stability
    A positive result of the company’s management over the last ten years.
  4. Dividendov vplaty
    Uninterrupted payment of dividends for the last twenty years.
  5. Earnings growth (per share)
    The minimum profit growth for the last ten years should be at least 33%, when the growth is calculated from the average profit for the three periods at the end and at the end of the observed ten-year time period.
  6. Nzk hodnota pomru P / E
    The share price should not be you, not the answer of fifteen times the average earnings per share for the last five years.
  7. Low value of the ratio of share price to assets per share
    The current share price should not exceed the last reported ethnic value for more than 1.5 times. However, a low multiple of earnings per share (less than 15) could justify the price-value ratio of assets. As a simple rule, we should use a compound criterion here, so that the product of the multiple of the profit and the ratio of thorns to ethical values ​​is not more than 22.5. (This value corresponds to the product of 15 times the profit and 1.5 times the etn value. This compound criterion would therefore justify the purchase of a share for 9 times the profit and 2.5 times the etn value, etc.)

General remarks:
We set these criteria for the needs and according to the temperament of a careful investor. By fulfilling these requirements, we eliminate from the list of candidates for membership in the portfolio a large majority of common actions available on the market, in two different ways. On the one hand, eliminate from the choice of society, they are

  • worse,
  • have a relatively weak financial position,
  • bear losses in the last ten years and
  • the company is not given a long history of dividend payments.

The test of financial companies in the current problematic period appears to be the best (ie the most difficult to meet) criterion. The relatively large number of our large companies, standing on two such well-established financial foundations, has seen a decline in liquidity in recent years or an unprecedented high level of indebtedness, or both of these negative phenomena

“The Smart Investor” is by far the best book ever written about investing. It is one of the thinnest publications of its kind, but so paradoxically perhaps most ignored in practice. Such is human nature. We just want to put everything together.

The last two criteria exclude companies from joining in the opposite direction; Because they require a dollar invested in the stock in profit and more assets, they do not provide more popular companies in the market. This is not the case in the standard view of a financial analyst; in fact, most of them will argue that even a conservative investor should be prepared to pay high prices for selected companies. N opan nzor we have explained it in the text; especially in the absence of a corresponding safety factor, when large prices depend on the endless growth of future profits. he has to answer this important question with the help of both parties.

Pesto, we decided to include in our criteria the requirement for a modest profit growth over the last ten years. Without this requirement, the company would show a shortfall (regression) at least in the indicator of profit per dollar of invested capital. There is no single reason why a cautious (defensive) investor should include such companies in his portfolio, even if, if the share price is very low, the stock could qualify into a group of suitable complexities.

The recommended maximum earnings per share should ultimately mean a portfolio with an average return of 12 13. Note that in 1972, the shares of American Tel. & Tel. traded for one-fold the average profit for three years, shares of Standard Oil of California for ten times the last profit.

One of our basic recommendations is that the stock portfolio should have at least as high a ratio of earnings per share to share prices as the value of the standard P / E ratio as a current return on high quality bonds. This means a P / E ratio of a maximum of 13.3, if we take into account the profitability of the investment with a 7.5% return on AA-rated bonds.

At the end of 2003, the yield on ten-year AA-rated bonds was around 4.6%, which would mean, as Graham suggests, that the portfolio of ordinary shares should have a ratio of earnings per share to share prices equal to these values. If we calculate the truncated value of this data (divided by 4.6 hundred), we will be able to derive the recommended maximum P / E ratio of 21.7. At the end of this paragraph, Graham recommends that the average value of the P / E ratio in the portfolio be 20% below the maximum value. This means that at present (under current market conditions) Graham would consider these shares to be attractive, it is being sold at prices around seventeen times the average profit over three years. As of December 31, 2002, more than 200% of shares in the S&P 500 index were valued at less than 40%, the P / E ratio (which is necessary with the average profit for three years) is 17.0 and less. Current AA-rated bond yields can be found at

The purpose of this revised edition of The Smart Investor is to apply Graham’s ideas to the conditions of the current financial market and still leave its original text intact (with the exception of notes under the explanatory note). Each Graham chapter is followed by a commentary. In these original shadows after the original text, there are also current examples, on which it is best to observe how current and how liberating remain Graham’s principles even today.

from the book: The Intelligent Investor

1. dl: Even a cautious investor will make time for it
2. dl: Speculation spe enrich someone else not vs
Length 3: Opposite investment tricks mean death
4. dl: You have to take speculation in the same way as casino games
5. dl: The investor and the speculator must pay attention to the forecasts of market development
6. dl: Mazan investor buys on the intermediate market and sells on bm
7. dl: A wise investor does not know that daily fluctuations do God
Length 8: A fearless investor can make up for stock market mistakes
Type 9: The investor must not allow the market to disturb him
10. dl: The price of the action is affected by five key areas
11. dl: Look at the pitfalls of earnings per share
12th dl: Bdl investor watches ethnicity business backwards


ryvek is from the book
“Intelligent investor”
vydan nakladatelstvm
City Publishing,
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