Benjamin Graham's Defensive Investor Strategy was discussed in his most popular book, The Intelligent Investor. At Columbia Business School, Professor Graham taught Warren Buffett & other professional investors who have outperformed the market.
Mr. Graham describes the Defensive Investor Screen as (Chapter 14, The Intelligent Investor)...
- Adequate Size of the Enterprise - $100 in annual sales ($50 million for a public utility)
- A Sufficiently Strong Financial Condition - a current ratio greater than 2 & long-term debt should current assets
- Earnings Stability - positive earnings for in each of the past ten years.
- Dividend Record - Uninterrupted payments for at least 20 years.
- Earnings Growth - "A minimum increase of at least one-third in per-share earnings in the past ten years using three-year averages at the beginning and end."
- Moderate Price/Earnings Ratio - "Current price should not be more than 15 times average earnings of the past three years."
- Moderate Ratio of Price to Assets -"Current price should not be more than 1½ times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule of thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5. (This figure corresponds to 15 times earnings and 1½ times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)"
My version of the screen modifies the suggested screen slightly. I target companies with:
- Revenues greater than 400 million
- Current Ratio greater than 2
- Debt/Equity less than 1
- Dividend history of at least 10 consecutive years
- Dividend growth rate in the last 5 years
- Price/Earnings less than 15
- Price to Book Ratios less than 1.5
As of mid-July, four stocks met these criteria, including:
