How Cabot Applies the Benjamin Graham Strategy
By
J. Royden Ward, Analyst and Editor of Cabot Benjamin Graham Value Letter
To achieve returns its goal of at least 20% annual return, the Cabot Benjamin Graham Value Letter screens a database of over 1,700 stocks for the highest quality companies. This ensures that all of our recommendations are strictly companies with solid balance sheets and track records of success. Stocks are then sorted and, if they meet all the specific criteria, included in one of two models, both based on Benjamin Graham’s value strategy.
Two models follow Benjamin Graham strategiesEvery issue of the
Cabot Benjamin Graham Value Letter recommends stocks in two models,
Classic Benjamin Graham Value Model and
Wise Owl Model.
You should choose stocks from both models to create a balanced portfolio that fits your personal objectives. The two models complement each other very well, so we recommend investing equally in stocks from both models.
Each model contains between six and ten stocks depending on the number of stocks that pass our rigorous quality and valuation screens. Each month, we typically add two new stocks to each model.
An important feature of our evaluation system for both models is the Maximum Buy Price and Minimum Sell Price that we calculate for each stock. We recommend that you buy stocks that are selling at or below our Maximum Buy Price. When the price is reached, we will alert you in both your monthly issue and your mid-month update.
Classic Benjamin Graham Value ModelThe Classic Benjamin Graham Value Model selects stocks of quality companies that are clearly undervalued according to the guidelines set by Benjamin Graham. The Classic Model tends to contain stocks of lesser-known companies in a variety of industries. Typically, stocks in the Classic Model tend to pay higher dividends than stocks in the Wise Owl Model.
We advise investors to buy these stocks at or below their Maximum Buy Price and patiently hold until positive developments begin to appear—usually in one to three years.
Wise Owl ModelThe Wise Owl Model system of analysis was developed by Benjamin Graham and Dr. Wilson Payne in 1946 and further enhanced by Dr. Payne and Cabot Benjamin Graham Value Letter editor J. Royden Ward in 1969.
The Wise Owl Model contains buy recommendations for stocks of well-known, high-quality companies with steady earnings growth. These stocks are undervalued, demonstrate strong price and earnings momentum, and are recommended by the leading independent research services. These attributes are quantified and measured for stock appreciation potential in the Total Owl Rating.
The Total Owl Rating measures stock appreciation potential from 1 to 10. It is comprised of the Owl Quality Rating, Owl Value Rating, Owl Growth Rating and Owl Technical Rating. A Total Owl Rating of 10 is best.
We advise investors to buy stocks with Total Owl Rating between 8 and 10 that are selling at or below their Maximum Buy Price. Most Wise Owl Model stocks will reach their Minimum Sell Price in one to three years.
We send an alert recommending that you sell a stock from the Wise Owl Model when any one of three conditions are met:
• The stock reaches its Minimum Sell Price
• The stock’s Total Owl Rating falls below 6
• The stock falls from our list of Highest Ranked Wise Owl Stocks
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