Benjamin Graham's Last Will and Testaments - 10 Critical Points for Investors
1 An earnings-to-price yield of twice the triple-A bond yield. The earnings yield is the reciprocal of the price earnings ratio.
2 A price/earnings ratio down to four-tenths of the highest average P/E ratio the stock reached in the most recent five years. (Average P/E ratio is the average stock price for a year divided by the earnings for that year.)
3 A dividend yield of two-thirds of the triple-A bond yield.
4 A stock price down to two-thirds of tangible book value per share.
5 A stock price down to two-thirds of net current asset value—current assets less total debt.
6 Total debt less than tangible book value.
7 Current ratio (current assets divided by current liabilities) of two or more.
8 Total debt equal or less than twice the net quick liquidation value as defined in No. 5.
9 Earnings growth over the most recent ten years of seven percent compounded—a doubling of earnings in a ten-year period.
10 Stability of growth in earnings—defined as no more than two declines of five percent or more in year-end earnings over the most recent ten years.
The first five points to potential reward by pinpointing a low price in relation to such key operating results as earnings.
The second five measure risk by measuring financial soundness and stability of earnings.
Here is the two great books written by Ben Graham, which considers as the bible for value investors!
