TITLE:
Assessing the Graham’s Formula for Stock Selection: Too Good to Be True?
AUTHORS:
Jason Lin, Jane Sung
KEYWORDS:
Graham’s Formula; Intrinsic Value
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.2 No.3,
March
6,
2014
ABSTRACT: Benjamin Graham offered a straightforward
and simple formula to evaluate stocks’ intrinsic value. Many regard the Graham Formula
is a very simplistic way of measuring an individual company’s intrinsic value. Graham
and Warren Buffet however felt that the simplicity of the model allowed them to
quickly and accurately identify undervalued companies, and stay away from overvalued
ones. In this paper, we wanted to explore the effectiveness of the Graham’s formula.
We wanted to see if using the Graham’s formula, investors can achieve excess returns
above the market over a period of 17 years.