Paying too much for your stocks? Consider the Value Factor.
The name Benjamin Graham is synonymous with value investing. Mr. Graham and co-author David Dodd released the influential book “Security Analysis” in 1934. (Graham & Dodd, 2008). This book provided a formula to calculate a company's intrinsic value based on its long-term growth potential and Earnings Per Share (EPS). And while this formula was improved upon in his follow-up book, "The Intelligent Investor" (Graham, 2013), which was published in 1974, its fundamental principles have remained the same for almost a century.
Value investing's fundamental tenet still revolves around buying stocks whose intrinsic value is higher than their current market price. However, its effective application depends on also being able to predict a company’s growth rate accurately and as a result, the exact formula isn’t commonly used in factor investing. Instead, factor investing focuses on Price to Book Value (P/B), Price to Sales (P/S), Price to Earnings (P/E), and Dividend Yield to measure value.