I’m a strong advocate of value investing as a safe way to profit in the stock market—in fact, it’s been a central force in my investing life since I’ve had any money to invest!
Like many college students, I was inspired to enter my particular field by an extraordinary professor, but the story actually begins much earlier than that.
Back in 1946, Dr. Wilson Payne and Benjamin Graham held meetings at Babson College to find a way to calculate the true fundamental value of a company. Dr. Payne was the Dean of the Investment Department at Babson College (known back then as Babson Institute) and Benjamin Graham was professor of Advanced Security Analysis at Columbia University and investment advisor with the Graham-Newman Corporation. The two collaborated to devise formulas that would estimate a fair value range for stocks based on Mr. Graham’s guidelines.
Many years later, I attended Babson, 15 miles west of Boston, and majored in Finance and Investments. I had the good fortune to take several courses taught by Dr. Payne, who made a lasting impression on me. Dr. Payne, a genius in math, made learning fundamental securities analysis painless. His teachings were based upon Benjamin Graham’s analyses.
After graduating from Babson, I worked for Paine, Webber in Boston for a few years and, after a stint in the Army, I was hired as Director of Research at Econometrics Research and Management in Boston. I was given the task of developing a computerized research system to analyze and evaluate stocks. I called upon my old friend and college professor, who was more than willing to lend assistance for free!
In 1969, Dr. Wilson Payne and I teamed up to develop computerized models using the formulas which he and Ben Graham devised to estimate the true fundamental value for companies 23 years earlier. We hired Dr. Richard Fey, a math professor at Boston University, and two computer programmers. And there I was, a newbie in the very sophisticated world of investments, standing among giants!
We developed a reliable system to estimate Maximum Buy Prices to indicate when to buy a stock, and Minimum Sell Prices to estimate when to sell a stock. In addition, we added Benjamin Graham’s guidelines for standards of quality, value and earnings growth to quantify each company’s attributes for comparison purposes.
I left Econometrics a few years later, after buying the exclusive rights to use the software programs that my team worked so hard to develop. I still own the rights and now use my computers to perform all of the calculations we developed decades ago. I am happy to report that the analyses we developed, based on Benjamin Graham’s teachings during the 1930s and 1940s, still work very well!
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My wife and I have further adapted my old computer programs to fit today’s modern computer operating systems. She’s an expert programmer. Our computers crank out two million calculations at the beginning of every month to create dependable ratings and forecasts.
Benjamin Graham emphasized investing in high quality companies. In his mind, all else is a gamble not an investment. For this reason, I include only 1,000 high-quality companies in my value stock database.
In addition to looking for high quality ratings, I also seek companies with high value and growth ratings. I can easily find undervalued companies by comparing a company’s current price to my Graham-generated Maximum Buy Price target.
Finally, I find companies with high growth ratings. These ratings are based on past, current and forecast growth rates for sales, earnings, dividends, cash flow, and book value.
During the past 20 years, I have recommended high-quality undervalued companies with steady growth every month in the Cabot Benjamin Graham Value Investor and its predecessor.
Until next time, be kind and friendly to everyone you meet.
J. Royden Ward
Editor of Benjamin Graham Value Investor
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