Vous êtes sur la page 1sur 3

Ben Graham on the Role of Intrinsic Value in Analyzing Stock... http://www.gurufocus.com/news.php?

id=107576

join | login

List of Gurus (Personalize) Search Guru Trades Search & Symbol Look Up
--Please Select-- EX: WMT EX: BUFFETT, WALMART
Go Go
Home Guru Stocks Premium Screens Value Strategies Insider Trades Articles Forum Subscriptions My Space

List of Gurus Gurus Portfolios Stock Ideas Broad Market Valuations Knowledge Center DCF Calculator Model Portfolios Scoreboard

Investing in Brazil FDI in Brazil Increasing with OFDI Why you should invest in Brazil! bric-investment.com Oscillator at DigiKey
Search Our Huge Selection of Quality
Stocks Ready To Soar Hot News Alert, Huge Profits 1000%+ Stock Near Explosive Breakout Point www.otcstockexchange.com
Electronic Components Here!

Buying Property in Tokyo We have distressed properties in Tokyo investment properties NOW realestate-minato.com

Benjamin Graham Mario Gabelli Buys MFE, Bill Ackman Publishes


Lecture - Comparative GOLD, NEM, NFG, RCI, 3Q10 Letter, Buffett Partnership
Balance Sheet Approach OGE Commenting on Letters: 1969
Holdings: KFT, TGT, C,
ADP, JCP
More: GuruFocus Research | Top Ranked Articles | Timeless Readings | Videos

Search Articles by Stock Symbol, Guru Names, or Keywords: search


All News and Columns »»

Ben Graham On The Role Of Intrinsic Value In Analyzing Stocks (Part 1) Announcement

Sep. 20, 2010 » gurufocus: New Forum: How to


Use GuruFocus
» gurufocus: My Investment
A lot of what passes for security analysis looks a lot like the Greater Fool Theory. Space - New Feature...
Investopedia defines the Greater Fool Theory as, “A theory that states it is possible to » gurufocus: GuruFocus Tutorials
make money by buying securities, whether overvalued or not, and later selling them are Now Available
at a profit because there will always be someone (a bigger or greater fool) who is
willing to pay the higher price.” Latest Forum Posts

» Post New Topic: Guru News |


This approach is as old as Wall Street, and, although a (very) few traders may Value Ideas
consistently make money using this approach (without the benefit of an advantage » LwC: Massive Insider Trading
such as high-frequency trading), the average person cannot. Investigation...
» rncarpio: How can an individual
Against this backdrop, Benjamin Graham came along and introduced a powerful new idea into the field of security investor... (1 reply)
analysis. The foundational idea was that when you buy a stock certificate you are buying a small piece of a real » shulink: JASO - Solar stock to
Greg Speicher watch
business. And if that is the case, a person ought to be able to come up with some idea of what the business is
Follow 9 following » BrianMcMo: View on Michael
worth by studying the facts: the assets, earnings, dividends, future prospects, management, litigation, etc. This is
Price
what Graham called intrinsic value. Graham further recognized that because of the enormous volatility in the stock
» LwC: Ritholtz: Dear Uncle
market, it would be possible from time to time to purchase shares of a given stock at a clear discount to what the
Profile & More Articles Sucker (CNBC)
underlying business was worth. This discount not only provided a rational basis for the expectancy of a decent
» davethebooker@hotmai: Wells
Author Website return (or indecent, depending on the level of undervaluation), but also afforded the investor a cushion of safety Fargo to Pay Citi 100 million...
against errors in judgement and analysis, and unforeseen future events.
» sabonis: Guru Suggestion:
Richard Rainwater
Graham points out that it is not possible to determine the intrinsic value of a business with exact precision. It is » Konstantin: Soros
Gurus Discussed: usually a range of values. If you can establish this range, you can then determine if the stock is undervalued, » AlexS50: View on Bill Ackman
Ben Graham: overvalued, or fairly valued. This lack of precision need not be a problem, if you can buy the stock cheap enough.
» AlexS50: View on Paul Tudor
By analogy, Graham says it is quite possible to determine that a man is obese even if we do not know his precise Jones
Profile
weight, or that a woman is old enough to vote even if we do not know her precise age. » Cosmopolite: Chimera
Current Portfolio Investment Corp. (CIM)...
Stock Picks In Security Analysis (Sixth Edition) (pages 63-67), Graham gives two example of equities where he determines » Bill Investor: View on David
their intrinsic value. Tepper
» edwolfe3: View on George
Writers Wright Aeronautical Corporation Soros
Compensation Program
» ju: why buys i receive in email
- Writers Wanted don't... (2 replies)
Here is a profile of the company in 1922:
» GlobalEconomicInsigh: Will
Columnists Wanted
Share price: $8.00 U.S. Quantitative Easing be...

Submit Articles
Earnings: over $2.00

Dividends: $1.00

Cash per share: $8.00

Graham’s range of intrinsic value: $20 to $40

Observations:

1. Graham concluded the stock would be a bargain at $8.00 per share.

2. The low end of the intrinsic value range is at most 10x earnings and as low as 6x earnings if we assume

1 of 3 11/23/10 9:29 AM
Ben Graham on the Role of Intrinsic Value in Analyzing Stock... http://www.gurufocus.com/news.php?id=107576

that the company had no debt. (At $20 per share you would only be paying $12 per share net of cash.)
Latest Comments
3. In no case would Graham estimate the value to be greater than 20x earnings ($40/$2). » davethebooker@hotmai: Re:
CenturyLink, Inc. – A Qwest f...
Here is a profile of the company in 1928:
» batbeer2: On Investment
Modeling, Part 3
Share price: $280.00
» graemew: Kirkland's: The
Falling Knife
Earnings: over $8.00 ($3.77 in 1927) » graemew: Re: Benjamin
Graham Lecture - Compa...
Dividends: $2.00 » Cowboy77: Bought Fairfax
Financial
Net-asset value: $50.00 » paulwitt: Re: Consuel Mack
Interviews David E...
Graham’s range of intrinsic value in 1929: $50 to $80 » Sivaram: Re: How can an
individual investor ...
Observations: » batbeer2: Re: Do You Believe
There is a Bond ...
» gurufocus: Re: Bruce Berkowitz
1. Graham thought that Wright Aeronautical might be worth as little as just over 6x its 1928 earnings. Launches New Fu...
Graham may have looked at the earnings in 1927 and been unconvinced that the company could maintain » bmichaud758: Re: 4 Reasons to
earnings at the $8.00 level. Buy Bank of Americ...
» toponemike: Re: Ben Graham
2. In no case would Graham pay more than 10x (what appear to be peak) earnings of $8.00 per share. Lecture - Investment...
3. At $280.00 per share (35x 1928 earnings), Graham thought it was clear that Wright Aeronautical was » graemew: Re: The Endowment
Effect: How Does ...
overvalued.
» softdude2000: Re: Margin of
Tomorrow I’ll take a look at J.J. Case Common and draw some conclusions for our use as contemporary value Safety Doesn’t Equa...
investors. » davethebooker@hotmai: Re:
Will the real Warren Buffett p...
» Sivaram: Re: If Only I Had
Known About These...
Greg Speicher

[www.gregspeicher.com]

Gregory Speicher is an Ohio-based investor. His career has primarily been in technology start-ups and small growth
companies, including an Inc. 500 Company which he cofounded. He also holds several patents. He received his
bachelor's degree in philosophy Magna Cum Laude from the University of St. Thomas in Rome, Italy, and attended
the MBA Program at the Wharton School of the University of Pennsylvania. He has attended Professor Bruce
Greenwald's Value Investing Executive Education Course at Columbia University and continues to read and study
widely in the field of value investing. Visit his website: GregSpeicher.com

Rate This Article:


Rating: 4.1/5 (9 votes)

Check out Ben Graham Stock Picks, and Current Portfolio,

More on Ben Graham:

Benjamin Graham Lecture - Comparative Balance Sheet Approach - Nov 21, 2010

Ben Graham Lecture - Investment Selectivity - Nov 19, 2010

Ben Graham on the Role of Intrinsic Value in Analyzing Stocks (Part 2) - Sep 21, 2010

Jason Zweig: Lesson and Ideas from Benjamin Graham - Sep 18, 2010
More by Greg Speicher:

Buffett Taps Combs – Confirms Principles - Oct 27, 2010

The Mark of a Good Business: High Returns on Capital (Part 2) - Oct 26, 2010

Gold Hiding in Plain Sight - Oct 21, 2010

Francis Chou: Canadian Investing Guru - Oct 20, 2010

User Comments:

1. Adib Motiwala says on Sep 20, 2010 at 6:54 PM:

Greg,

For the first company he was ok to pay a max of 20x earnings but for the 2nd one only 10x earnings? Is it because
the earnings were not sustainable or was it something else about the business? Also, for the max 20x he did not
account for the cash position. Its interesting because when we look at the large cap tech stocks such as Apple
(AAPL), Microsoft (MSFT), Google (GOOG), analysts always seem to subtract the cash from the market cap to
arrrive at a P/E multiple. Obviously, the multiple looks much different if you subtract the cash.

I wonder what kind of value he would place on AAPL, GOOG, MSFT, NFLX and CRM.

Quote This Comment


Rate this comment:
Add Your Comment Rating: 1.0/5 (1 vote)

2 of 3 11/23/10 9:29 AM
Ben Graham on the Role of Intrinsic Value in Analyzing Stock... http://www.gurufocus.com/news.php?id=107576

2. Davidm1 says on Sep 21, 2010 at 12:46 AM:

What method does he use to get intrinsic value?

Quote This Comment


Rate this comment:
Add Your Comment Rating: 1.0/5 (1 vote)

Please Leave Your Comment:

Post

If you like this page, you will love Our Premium Membership, Take a Free Trial.

Tell your friends about This Page:


(Comma separated)
Your friends' emails:

Your email address:

Message :

Send

If you like this page, you will love Our Premium Membership

Friendly Links:
Retire on This One Hot Stock! Stay Connected with the Gurus
This stock is up 100% since we first picked it. Our expert analysts say it will double again in the next 12 months! Our top
19 stocks picks were up an average of 221.48% last year (not a misprint).
Www.wallstreetconnection.com
Find wall street professionals and service providers all in one location, search find connect!
Payday Advance
Online cash advance service for up to $1500, fast 1 hour payment with no fax or references required.
VIDEO: 6 Penny Stocks to Own Right Now...
Greg Guenthner, editor of Penny Stock Fortunes is giving away 6 (SIX) penny stock recommendations to all new
subscribers! Click here to watch the video now.
List Your Website Here
(> 1 million page impressions a month)

Home Advertise Site Map Term of Use Privacy Policy Subscribe FAQ Contact Us
Warning: mysql_close(): 11 is not a valid MySQL-Link resource in /home/gurufocu/public_html/include/footer.php on line 67

© 2004-2010 GuruFocus.com, LLC. All Rights Reserved.

Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The
information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and
information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of
the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost
opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it
constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Daily
updates provided by QuoteMedia, Inc. (CSI). Fundamental company data provided by Zacks, Inc.

3 of 3 11/23/10 9:29 AM