Invest like Benjamin Graham in Singapore stocks

[junming82]

Benjamin Graham is the father of investing and his way of value investing was to search for net-net stocks where he will construct a basket of stocks as his portfolio. His method of value investing is still being widely practiced by value investors such as Seth Klarman, Third Avenue Management etc.

This is a reprint of an article from brokerage research house, CLSA. In this article, they construct a stock screen that incorporates the attributes that Ben Graham looks for in a undervalued stock and run the stock screen through all the SGX stocks to find stocks that fulfill it. The end result of this stock screen is the Ben Graham Number.

What is the Ben Graham Number?
Graham Number is a concept based on Ben Graham's conservative valuation of companies. Graham Number is calculated as follows:

Graham Number = SquareRoot of (22.5 * Tangible Book Value per Share * Earnings per Share)
= SquareRoot of (22.5 * Net Income * Total Equity) / Total Shares Outstanding

Which Singapore stocks passes the Ben Graham Screener?
The following list of stocks passes:
F&N
City Dev
Keppel Land
Ezion
Parkinson Retail Asia
Keppel
Genting

To read which Singapore stocks passes the Ben Graham test, read the article here

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Disclaimer: This is not a buy or sell stock tip. Please do your own research. 
Value investing blog: http://valuestocksinvesting.blogspot.sg/

[Musicwhiz]

Seems rather mechanical - using a formula.

Are Ezion and Genting really good investments? Can we just base it on that formula?

I highly respect Graham but he was, after all, a quantitative person. He did not really care about the business and qualitative/Management aspects; I think these should not be neglected as we search for good investments.

Comments are welcome.

[junming82]

I think Ezion was really a good investment 2 years ago when it was trading at 0.50 cents. The business is in a niche area and has great growth. Of course,the stock price now reflects the value of the business and at the current level, I do not think that it has much margin of safety. As for Genting, the number of recurring customer aka gamblers means that its service is always in demand but in Singapore context, it is under the government control and probably sanction for any mis-step in their operation thus in such a scenario, I do not think that Genting is a good investment. Feel free to share your comments

_________________________________________________________________________________________________________________
Disclaimer: This is not a buy or sell stock tip. Please do your own research. 
Value investing blog: http://valuestocksinvesting.blogspot.sg/

[snowcap]

I highly respect Graham but he was, after all, a quantitative person. He did not really care about the business and qualitative/Management aspects; I think these should not be neglected as we search for good investments.

Totally agree. If it were so easy to just crunch numbers, many more would be multi-millionaires.

That's why I try to attend AGMs, but this year the bunching up was bad. We small investors can tell a lot about the management from attending AGMs.

[FFNow]

I don't think we can find net-nets easily in SGX, let alone the well-known companies. Net-nets worked in the old times when internet wasn't prevalent and information was more scarce. With the advent of technology, such companies are rarer to find. However, having said that, if one were to go to emerging markets such as Vietnam, Myanmar, etc, one would be able to find net-nets much more easily than in Singapore.

[Salty]

I'm confused. I always thought graham buys a portfolio of net net stocks
Like stocks trading at net working capital?
Which would mean stocks trading at huge discount to their book value.

Seems like the stocks mentioned are all ahead in book value at first glance.

[Dividend Warrior]

I don't think we can find net-nets easily in SGX, let alone the well-known companies. Net-nets worked in the old times when internet wasn't prevalent and information was more scarce. With the advent of technology, such companies are rarer to find. However, having said that, if one were to go to emerging markets such as Vietnam, Myanmar, etc, one would be able to find net-nets much more easily than in Singapore.

We live in different times......sighz......

[Devil]

Mentioning that graham number is the valuation of stock according to graham will help me under this number easier. so if the stock price is lower than graham number, the stock is a buy.

i believe there is something wrong with your formula
Tangible Book Value per Share=/=total equity/outstanding shares
among equity, there is still intangible assets, such as accounting goodwill.



and this formula, seems to place an equal weight between book and earning
for instance,
stock A with book value of $1 per share, and earning of $0.20 per share
stock B with book value of $2 per share, and earning of $0.10 per share

they will have the same graham number. people who believe more in roe, will take stock A. On the other hand, people who believe more in assets, will take stock B. Should the weight between book and earning be equal?



also, is the number 22.5 too arbitrarily? why not a round number of 22, or 20? should this number be affected by interest rate?
why use a square root?


before employing a formula, understanding how the formula works is important, to avoid being blindsided.

[opmi]

Eastern can be a net-net. if Bryton building was sold.

[smallcaps]

Eastern can be a net-net. if Bryton building was sold.

Yea I think graham would be shocked abt management buyouts at net net prices