Ben Graham's Advice from The Intelligent Investor
- Adequate size
- Current assets >= 2 * current liabilities
- Earnings in each of the past years
- Uninterrupted dividends over the past 20 years
- Min increase of at least one-third in per-share earnings in the past ten years using three year averages at the beginning and end
- P/E <= 15, note that earnings are the 3 year average
- P/B <= 1.5
However, P/E under 15 can justify a higher multiplier of assets. Rule of thumb:
P/E * P/B <= 22.5
15 * 1.5 = 22.5
or
9 P/E * 2.5 P/B = 22.5
8. Basic recommendation, E/P ratio at least as high as the current high-grade ratio
Warren Buffett added this additional criteria
- Franchise companies with strong consumer brands
- Easily understandable businesses
- Robust financial health
- Near-monopolies in their markets
- After a scandal, big loss or other bad news passes over (e.g. New Coke, market crash)
- Managers who set and meet realistic goals
- Build businesses from within rather than through acquisition
- Allocate capital wisely
- Don't pay themselves hundred million dollar jackpots of stock options
- Steady sustainable growth in earnings
A moat, a castle. e.g. Coke. You could have a billion dollars and not compete with Coke
80% in 5 positions, with 25% in the largest position
A business that can prosper even without a genius manager