Independent Research Reveals Use of Low Volatility & High Dividend Strategies Will Escalate Your Investment Portfolio...
Benjamin Graham, Warren Buffett's former professor, employer and Guru, stated the defensive investor will select only high-grade bonds and choose from a diversified list of leading common stocks whose price is not unduly high. The list may either be based on the Dow Jones Industrial Average (DJIA) or on quantitative testing. I prefer using quantitative screeners and using both the CNBC Stock Screens and the FinViz.Elite shown supra.
I enter the following quantitative criteria: (taken from the intelligent Investor by Preston Pysh and Stig Brodersen)...
1. Adequate Size of the Enterprise: Exclude small companies; some may have possibilities, but the group as a whole is not suited to the defensive investor.
2. Sufficiently Strong Financial Condition: Current assets should be at least double current liabilities, known as he "Two-to-One ratio." This means the current ratio should be higher than 2.0. Long-term debt should not exceed working capital. For public utilities, debt should not be greater than double the book value of equity. This means the debt/equity should remain under 2.0. Earnings Stability: At least some earnings declared in all preceding ten years.
4. Dividend Record: Uninterrupted payments for at least twenty years. (Warren Buffett prefers for dividends to be left as income earnings.)
5. Earnings Growth: Minimum increase of at least a third in per-share earnings in previous ten years, using three-year averages at beginning and end.
6. Moderate Price/Earnings Ratio: Current price should not exceed 15 times earnings averaged over previous three years.
7. Moderate Ratio of Price to Assets: Current price should not exceed 150% of last reported book value, with allowance for a lower P/E but selling at higher proportion to book value (e.g. P/E of 9, at 250% book value would be acceptable).
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