Benjamin Graham's Investment Screening

Ever wondered how Benjamin Graham used to screen for investment picks?

Here is his list:

1. PE of the stock has to be less than the inverse of the yield on AAA corporate bonds.
2. PE of the stock has to be less than 40% of the average PE over the last 5 years.
3. Dividend yield has to be more than two-thirds of the AAA corporate bond yield.
4. Price has to be less than two-thirds of book value.
5. Price has to be less than two-thirds of net current assets.
6. Debt-Equity Ratio (Book Value) has to be less than one.
7. Current assets have to be more than twice current liabilities.
8. Debt to be less than twice current assets.
9. Historical growth in EPS (over last 10 years) has to be over 7%.
10. No more than two years of negative earnings over the previous ten years.

Although Modern Portfolio Theory teaches that it is generally impossible for any individual to outwit the market, Graham's approach retains a widespread and dedicated following. Graham’s best claim to fame comes from the success of the students who took his classes at Columbia University. Among them were investors like

Charlie Munger and Warren Buffett.

Have in mind though that Graham's criteria can lead you to stocks that are value traps, meaning the shares are cheap for good reason and unlikely to appreciate. Screens are a good place to start, but it is common sense not to buy without doing your own research.