Jae Jun
If you haven’t read The Intelligent Investor, you are missing out on timeless advice. One of which is to buy at a great margin of safety. I won’t be going through the details of the book but an explanation and how to is explained in the article titled “How to value a stock with Graham Formula“.
, you are missing out on timeless advice. One of which is to buy at a great margin of safety. I won’t be going through the details of the book but an explanation and how to is explained in the article titled “Instead, I’ve applied Benjamin Graham’s formula to a free stock valuation spreadsheet that allows anyone to quickly value the fair value of a company (quantitatively). There are sites that already do this but I wanted something where I could do it on my own for any company. (download link is down the bottom)
A quick quote to start things off.
Confronted with a like challenge to distill the secret of sound investment into three words, we venture the following motto, Margin of Safety. – Benjamin Graham
Benjamin Graham Formula Overview
Ben Graham’s formula is as follows:
Intrinsic Value = “normal” earnings x (8.5 + (2 x expected 5 yr growth)) x (4.4/20yr AA corp bond)
- Normal earnings refer to earnings over a period of years. Not just the previous year.
– 8.5 is the PE of a company with no growth.
– In the spreadsheet, growth rate is user defined. Check out a method to determine growth rate.
– Back when Graham wrote the book, he was using a 20 yr AAA corp bond rate of 4.4%. To apply the formula today, we need to normalize it to todays rate. I’ve put the 20yr AA corp bond rate as the denominator since the AA rate is slightly higher than the AAA and will give a slightly conservative number.
However, I use a very slight modification to this formula which I detail in an article I wrote titled “How to Value a Stock with the Ben Graham Formula”.
How To Use The Spreadsheet
I’ve tried to make it as user friendly and eye pleasing as possible. In order to get it working though, you MUST install the plugin for excel which is described below. The plugin allows excel to automatically retrieve all financial statements and prices that I use in the spreadsheet.
Some Explanations
A difficulty I had was to figure out how to come up with a reasonable future EPS guide. I know I’ve said I don’t like using EPS as a guide and I still stick to that. However, I wanted to see how the Graham formula worked and what type of valuation it revealed.
Here is how I calculated the future EPS. Note, I am a conservative guy. If you feel, the ranges are incorrect, let me know or try changing some things yourself and if it works better, let me know.
- For the 1st future year, I took the constant at which the EPS had linearly increased over 10 years
- I added the constant to the average increase of EPS throughout the past 10 years
- I then added an additional “growth sum” to the number I get from step 2
- For the 2nd future year, I took the constant
- Added it to the 1st future year
- Added the “growth sum”
- And so on
Other Points
Since this stock valuation calculator is free, if you enjoy this spreadsheet, consider buying the best stock valuation spreadsheet available on the internet.
IMPORTANT!
Please read the installation guide and FAQ.
To date, I’ve been spending hours helping people with simple excel issues on a free product rather than anything spreadsheet related.
So for all excel and install problems, place all questions in the comment sections below. That way I won’t have to answer the same question again and again.
How to Download
The download has now moved. To download the spreadsheet, you must go to the main page of Old School Value and sign up with your email to receive a list of free spreadsheets.
The list includes nine free spreadsheets, the add-in required to download data from the internet as well as all the installation help material.
Premium Spreadsheets
Feel free to check out the free version and then when ready, go to the stock valuation software page and review what you will get with the premium.
The premium version includes several valuation models as well as fundamental analysis data, historical data, charts and competitor comparison features. Just by entering one ticker, you can immediately get all that information on your favorite stock which will save you hours in your analysis.
Benjamin Graham Spreadsheet Screenshot
