Resumo de Three Simple Methods Of Common Stock Selection

If the charts, analysts and the regular thought gave damages to your portfolio, read this summary. This lecture made in 1975 by Graham for young administrators and financial analysts, not only summarize in the magnificent way the grade Graham reached on interpretation of financial data, but also the soundness of his emotional and ethical behavior aside the mood of the market. This text is not available with easiness, and the reader makes well to attempt reading this summary, although this seems to sail far from the strong and surprising style of this man who at that time was more than 80 years old. Graham makes a market study analyzing the Dow Jones Industrial Average, the Value Line Composite Index and the oscillations of the Stock Market ,formulating the question that never keep silent: Is there a simple method that could be developed from the behavior of the market and could bring future consistent profits? The answer is that this method exists, and must fill 3 criteria: *** 1.it must be logical or at least acceptable, *** 2. must be of easy application and *** 3. must offer a satisfactory result if analyzed retrospectively. Graham explains that the successfully method used by the Graham and Newman Associates during 35 years, that was buying bargains (stocks whose price is below the net current asset value), was not feasible in bull markets like occurred in 1949 because the market did not offer enough amounts of this ?bargains?. The author mounted then 3 methods for study: (without intersections, OR one OR another one) ***** I (method 1).to select companies whose index Earning/Price was above two times the income of a Moody's Aaa bond, and this index E/P was never below 10% (= discard if below 10%). ***** II (method2). all the stocks below book value were chosen for purchase. ***** III(method3). market criterion: to buy the stocks whose current price was below 50% of the two years maximum value. For each method - throughout 2 years - 30 assets were chosen that satisfied the specifc criterion . Each stock was sold when it reached 50% above the price paid, or after two years even with prejudice. The conclusion is that with whatever method (1, 2 or 3), it is possible to get an income 5% above of the Dow Jones Industrial Average and ValueLine Composite, and between 5% -15% above any random chosen portfolio from NYSE. About the 3 criteria above, Graham adds that it is useless to associate a criterion to another one, because such attitude, in the real world, did not take the best results and in many cases it means inferior results if compared to the use of a single criterion.Moreover, if market offers more than 30 assets (throughout 2 years) that fulfill chosen criterion, the investor makes better buying those with sound financial condition from the standpoint of debt and those that pay better dividends. Finally and briefly, the article denies the utility of the beta index (of risk- Markowitz-Sharpe), considered highly mathematical, but whose human factors involved in the attainment of the expected profit,necessary for the calculation, leads the numbers to a fake estimative. No charts, no foreseen. It's the master Graham.

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