Benjamin Graham  |  Value Investor

Widely recognized as the father of securities analysis, Benjamin Graham argued for investing in stocks that were significantly undervalued relative to their intrinsic worth, which he measured principally by their future earnings potential. Defensive investors who followed his advice, he said, would enjoy an invaluable "margin of safety" in their investment activities. In his classic book The Intelligent Investor, Graham recommended buying stocks of large, prominent and conservatively financed companies with a long record of continuous dividend payments. He warned against stocks with price-to-earnings ratios of more than 25 times trailing seven-year average annual earnings, or more than 20 times their prior 12-months results. (He did that even though he knew it meant excluding growth stocks.) A true bargain, Graham insisted, was a company whose real value was at least 50% more than its stock price.

Graham's methodology is appropriate for conservative investors worried about the high valuations currently accorded to many stocks, but unwilling to settle for investing only in cash or bonds.

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