Graham's Formula

Post date: Mar 18, 2010 8:27:19 PM

Pick a basket of 30 or so stocks that meets the following criteria:

Criteria 1:

A maximum P/E ratio of 10 is acceptable.

Earnings are the proverbial bottom line on a company's income statment, so the P/E ratio indicates what an investor is paying for a dollar's worth of annual earning's or profit. He says, never pay more than $10 for $1 worth of earnings.

Criteria 2:

An equity/asset ratio of 50% or higher emphasizes a company's financial health or stability.

Exit strategy:

When the original stock posts 50% gain OR fails to do so after 2 to 3 years - drop it from the basket. Replace it with another stock that meets the above criteria.