Ben Clark started ModernGraham in 2006 after a simple discussion with his fellow DePaul University Finance Honors student Jon Ritchie about Benjamin Graham’s The Intelligent Investor. Ben found Graham’s work to be particularly fascinating and spot-on after having learned a hard lesson from a failed investment in high school. After discussing how Graham’s methods could be applied today, Ben went about tweaking some of Graham’s core principles to make them more relevant in the current financial atmosphere.
The first few years of ModernGraham saw some periodic changes to the methodology, as Ben continued to develop the ModernGraham approach to best fit within Graham’s original framework. Eventually, Ben solidified the process to be a three-step analysis of investment opportunities:
Graham provided various requirements for two types of investors. The Defensive Investor is not willing to do significant research into an opportunity while the Enterprising Investor will do extensive research.
Graham's formula is a tool for estimating the intrinsic value, and implementing a margin of safety helps determine if a company is singificantly under- or over-valued.
The ModernGraham formula required additional development in order to take into account a few of Graham’s other principles such as employing a margin of safety and normalizing earnings. Therefore, Ben added multiple safety margins into the valuation model, through limits on the possible growth estimates and only rating a company “undervalued” if it is trading below 75% of its intrinsic value. In addition, the ModernGraham calculation of earnings per share (“EPSmg”) utilizes a weighted-average of the past five years of earnings in an attempt to normalize the business cycle.
Premium Members can also get access to the MG Grade, a rating system designed to help narrow down the list of investment opportunities. The MG Grade system incorporates intrinsic value, financial statements, and dividend history.
This part of the process must be completed by the individual investor, but we provide you with helpful information about the company to assist in the decision-making process.
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Jim, a subscriber