Comments on: How to Value a Stock with Benjamin Graham’s Formula

By: Jae Jun

Jae Jun — Mon, 06 Feb 2012 18:40:28 +0000

growth rate is calculated based on historical returns. If the growth rate seems incorrect, you also have the option of overriding it with your own value.

By: Hieu

Hieu — Sun, 05 Feb 2012 02:37:52 +0000

How do you get the growth rate (g) ?

By: Jae Jun

Jae Jun — Fri, 27 Jan 2012 19:10:04 +0000

I believe you mean to be helpful, but to me it just comes across as arrogant.
There are a category of people in the world like Graham who just enjoy teaching and sharing without wanting anything in return. These people just have an abundant wealth of knowledge from all the reading they have done, and go out of their way to teach and share. How do I know? Because I know several of these people first hand.

Just believing that reading will help you is useless. Without discussion and application, it’s nothing but wasted words. That’s the key.

By: Burak

Burak — Fri, 27 Jan 2012 09:47:10 +0000

It is funny to see people here discussing a formula that wont help them. You can get every possible value for this formula. This formula is only usable if you have businnes experience and so know what factors are relevant for the growth rate. Believe me: 95% of you dont know how to use it correctly.
In real this formula is only a product of a more useful formula that gives back the intrinsic value with a certainity of 100 percent.
I dont know if Graham knew this other formula. I can imagine he did but he didnt tell. Why should he? Why should Warren Buffett tell you the core of his knowledge or the “moat” like he would say.
If you want to learn this formula you must read read read, i give you 7 years, therein you will may be able to create this simple formula.
Unfortunatelly i wont tell you, like Buffett wont tell you, too. This formula is the real “moat” that makes me one of the 5% winning, and the others 95% loosing and wasting their time with Graham´s formula, which give too much room for interpretation for 95% of people dont knowing which rate to use.
I hope you see me one day next to the greatest investors. I hope you dont waste your time with this formulas. You should read day and night books about economics and businesses, like i did many years. There are no secrets, many years of reading can give you key information that you will never find on google, or in any formula book, or chats or sites like this.

By: jalleninvest

jalleninvest — Fri, 06 Jan 2012 20:04:51 +0000

Graham added a warning to his discussion of this formula in The Intelligent Investor:

“This material is supplied for illustrative purposes only, and because of the inescapable necessity in security analysis to project the future growth rate for most companies studied. Let the reader not be misled into thinking that such projections have any high degree of reliability or, conversely, that future prices can be counted on to behave accordingly as the prophecies are realized, surpassed, or disappointed.”

Graham, Benjamin; Jason Zweig; Warren E. Buffett (2009-03-17). The Intelligent Investor, Rev. Ed (Kindle Locations 4359-4362). HarperCollins e-books. Kindle Edition.

By: Sujal

Sujal — Wed, 23 Nov 2011 15:26:30 +0000

Hi, I liked your explanation. But can you help me to figure out equation for Indian market. I’m from india. In India, corporate bond is interest rate is around 9.5 to 10%. AAA bond yield will come around 11.5% so what should be my equation for calculating intrinsic value = (EPS * (7 + (1.5*G))*9.5)/11.

Is it correct ? Please help me to solve this. And my modification is correct or still i should use either original or your modified formula ?

By: Sam Ho

Sam Ho — Wed, 12 Oct 2011 04:53:32 +0000

I see that you used normalized EPS here but estimated EPS in ur spreadsheet?

which one do u prefer in what scenario? does it depend on Rsquare?

Thank You

By: Jae Jun

Jae Jun — Mon, 13 Jun 2011 16:27:49 +0000

Yes sure do. It’s a decent method.

By: aku

aku — Mon, 13 Jun 2011 12:42:10 +0000

Do people use Ben Graham Method in real life to do stock valuations?

By: Jae Jun

Jae Jun — Sun, 27 Jun 2010 03:34:54 +0000

@ Imran,

I get asked a lot about whether the spreadsheets will work outside of USA and the simple answer is no.

As far as I know, there is no other country in the world that offers the level of transparency required by public companies as well as the vast amount of resources available by 3rd party sites.

Regarding the growth rate calculation, it is very subjective but you wouldn’t want to use the FCF growth rate for the graham calculation because the Graham formula is based off earnings. You would have to use the EPS growth for that.

By: Imran

Imran — Sat, 26 Jun 2010 14:51:50 +0000

Dear Jae,
At the outset, I would thank you to provide us with such a valuable source of investment information. I am hugely fascinated by your excel spreadsheet intrinsic value calculator. However, my problem is that I am in India and I do not know a database from where I could pull up the data nto your spreadsheet (after i buy it). Could you please somehow use your research and help me with this problem. Secondly, I have personally developed a Graham formula and DCF valuation worksheet, where my biggest problem is the calculation of growth rate. My question is that whether five years growth data of free cash flow would be enough to arrive at a meaningful value of the stock. Any more suggestions would be helpful. Thanks.

By: C

Tue, 22 Jun 2010 16:26:54 +0000

I’d like to point out that the calculations on this page are incorrect.

So instead of:
=1,4*(7+(1,5*12,6)*(4,4/6,05))

it should be:
=1,4*(7+(1,5*12,6))*(4,4/6,05)

See http://www.fool.com/portfolios/rulemaker/2001/rulemaker011031.htm for details.

By: Michael

Michael — Wed, 26 May 2010 01:52:12 +0000

…Andrew, that is.

By: Michael

Michael — Wed, 26 May 2010 01:51:34 +0000

Who are you?

By: MJ

MJ — Fri, 12 Mar 2010 13:59:24 +0000

Actually Buffett ended up paying about $93/share for BNI if you include the 22% he bought on the open market before the buyout offer. Those shares were purchased at a cost basis of something like $75.

By: JMRojo82

JMRojo82 — Thu, 04 Mar 2010 21:41:38 +0000

Good post. I have 3 questions.
1) Does “The Intelligent Investor” explain the methodology behind the variables in the formula, specifically why was 2 used in 2g (ie – I understand 2 is modifying the PE ratio to reflect the growth rate, but what makes 2 the magic number to adjust the growth rate? or 1.5 for that matter)
2) Why are we multiplying the percentages by 100 (ie 12% is 12 in your formula and not .12)?
3) Can you explain the original equation is multiplied by 4.4%/y. I see your explanation above, but don’t follow the mathematical relationship.
If all of this is covered in Grahm’s book, then just tell me to defer to the book.
Thanks,
-Rojo

By: Jae Jun

Jae Jun — Sat, 19 Dec 2009 21:59:35 +0000

Luke,

Yes the formula works for all companies

By: Luke

Luke — Fri, 18 Dec 2009 22:49:07 +0000

Hi jae,

just wanted to know if Grahams formula can be used for UK stocks?

Great site by the way.

By: Jae Jun

Jae Jun — Fri, 04 Dec 2009 17:55:00 +0000

David,

Based on my assumptions, Buffett wouldn’t use Graham’s formula as it depends heavily on EPS which is something Buffett has clearly expressed is not correct. Even if he decided to use his Owner earnings as the EPS, that still changed the formula.

The formula is only guide. There is no right and wrong way, but for my investing, the standard Graham formula is not correct.

BNI is a very different story and is much deeper than a valuation. Buffett bought it as an inflation protection investment as well as its hidden assets which is not shown on the balance sheet.

So on paper, I think he overpaid, but in reality, he probably got a good deal. Also remember his See’s Candies purchase was not a cheap one at the time.

By: David Ng

David Ng — Fri, 04 Dec 2009 17:49:07 +0000

hi jae, although i feel okay with your adjustments to the formula. but then intrinsically, you’re changing benjamin graham’s formula. as we all know, buffett is the most disciplined follower of graham. if you take a look at his recent BNI acquisition. buffett still uses graham’s formula to place a value on BNI. we get a value around $93 and buffett paid $100.

when you adjust your formula. we get a value for BNI around $65. then would you be suggesting that buffett overpaid for BNI (which is not his usual practice)?