Earlier this month, the Empirical Finance Blog published the results of their backtest of Ben Graham’s stated investment strategy from a 1976 article in Medical Economics.
Graham suggested that the following strategy would average a 15% annual return:
- Start with a list of stocks trading at no more than 7x trailing earnings (the top P/E should be 100 / 2x the AAA bond yield)
- Eliminate any companies that do not have stockholders equity / total assets of at least 50% (Debt / Equity of no more than 1)
- Create a portfolio of 30, send sell once you’ve hit a 50% return or 2 or 3 years have passed
The results are interesting and I’d suggest checking them out here.
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