Is the Cabot Benjamin Graham Value Letter right for you?
By
Timothy Lutts, Chief Investment Strategist
For Cabot Wealth Advisory 2/27/08
Sign up for free Cabot Wealth Advisory e-newsletterCabot Benjamin Graham Value Report is based on the teachings, naturally, of
Benjamin Graham.
He's the fellow who taught Warren Buffet about value investing back at
Columbia University. Another student of Graham was Wilson Payne, who
earned a doctorate and became a teacher at Babson College...where he
taught
J. Royden Ward. Eventually, Dr. Payne and Roy Ward teamed up to turn the Graham system into a computer program.
Throughout
the '70s, '80s and '90s, Roy used this system in his investing work,
growing increasingly comfortable with it. Having found a system that
not only works but also suits his personality, there was no reason to
change. In that regard, Roy's a paragon, a perfect example to emulate.
In
2003, Roy joined the Cabot family, adding this long-established value
investing system to our stable of growth-oriented letters so that
thousands of investors worldwide could benefit from his system.
Now,
technically, anyone could reproduce this system; after all, Benjamin
Graham's teachings are well known; he wrote two great books detailing
his methods. But practically, I've got to say it's a bear of a job. For
each stock in his universe, Roy tracks 44 separate items that size up
the company using four separate sets of factors, Quality, Value, Growth
and Technical.
Quality encompasses measures like Current Ratio, Earnings Stability and Price Growth Stability.
Value
tracks items like PE ratio, Historical Price/Book Value relative to
Current Price/Book Value, and Historical Price/Dividend ratio versus
Current Price/Dividend Ratio.
Growth
looks at things like 5- and 10-year historical revenue growth trends,
Quarterly Earnings Acceleration and 5-year projected cash flow.
Technical measures things like Relative Strength, Price Stability and Industry Strength.
And
there are 32 more items! But you don't need to worry about those
details, because Roy does all the work and presents the results, each
month, in a 12-page letter that tells you in plain English what to buy
and why. Last month, for example, he highlighted four stocks in his two
Models, Manpower (MAN), Tiffany (TIF), General Dynamics (GD) and
PepsiCo (PEP), explaining why they were good values that would reward
investors in the long run. In just three weeks, those four stocks are
up an average of 5%! None of them are down.
And that's not
unusual. Benjamin Graham's system, of course, is very big on keeping
risk low. You only buy a stock when it's below its Maximum Buy Price.
And you don't sell a stock until it reaches its Minimum Sell Price.
The
result? For more than 80 years, through Benjamin Graham, then Warren
Buffet, Wilson Payne and now Roy Ward, this system has delivered an
annualized return of 20% in almost every kind of market.
Since inception in 2002, Roy's
Classic Value Model has earned a compound annual return of 20.0% compared to the Dow Industrials' 7.2%.
Since inception in 1995, Roy's
Wise Owl Model has earned a compound annual return of 16.3% compared to the S&P 500's 6.9%. And in every issue, you'll find a
Special Feature
that highlights a particular (more narrow) investment strategy. One
month it might be stocks with particularly low Price/Book ratios;
another month it will be stocks with High Cash Flow.
Last month, Roy's Special Feature was Undervalued Companies with Accelerating Earnings. Here are the stocks Roy recommended:
• Blackrock (BLK)
• FC Stone Group (FCSX)
• Intuitive Surgical (ISRG)
• Mobile Telesystems (MBT)
• Potash Saskatchewan (POT)
• Quicksilver Resources (KWK)
Roy
says these stocks should be held for six months. But after just three
weeks, these stocks are up an average of 7%. Yet they're still cheap by
his methods.
Admittedly, there are more exciting ways to invest,
and Cabot has newsletters that can satisfy thrill-seekers as well. But,
if you like the idea of buying low and calmly hanging on; if you like
the thought of going on a cruise and not worrying about being out of
touch with the market for days at time while your stocks appreciate;
and if you like the "low risk" that comes from buying stocks when
they're dirt cheap, I'm guessing Cabot Benjamin Graham Value Letter is
the advisory that's right for you.
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