My thoughts are, if a company lacks quality, its fundamentals will deteriorate. It might have a pretty financial statement that fits all the Graham criteria for now, but it will be gone in a year or two if the industry changes or more competitors show up.

I’m also considering competitive advantages. A good company should be able to make it hard on competitors by either, owning a piece of mind of the consumers (brand awareness), or being a low-cost producer. There’s so much more into this, I recommend reading Philip Fisher to get more details.

frankly speaking i hate to read books. as i want to further enhance knowledge on value investing, im now tempted to read the intelligent investor book! i will get it soon.

even though i have not read his book, i did almost similar screening for stocks.

The performance of the share portfolio recommended by the model in January 2003 was studied in this month (August 2006). The portfolio outperformed the BSE sensex, the popular market index in India. My paper on the method can be accessed through my blog.

I think it’s important to understand the business/industry that a company is involved in so you can figure out if its cheap or not. And if you have a margin of safety or not.

Basicly you are banking on three things.

*Cash flow generated by the business, which creates going concern value.

*An increase in the market price for that cash flow.

*A narrowing of the gap between the market price and the value of the business as a going concern.

Given the amount of time and effort involved I think most folks would do fine to invest in value oriented ETFs.

Companies without capital assets were uncommon prior to the 1970s. For example the idea of an industrial company like Microsoft with $70 Billion in assets of which “Property Plant and Equipment” is only 2.3 billion, just didn’t exist back then.

In the 1980s between corporate raiders focused on ROE and very effecient Japanese companies, most companies have aligned themselves toward creating shareholder value rather than being towers of financial strength.

There are also a few other calcs (such as Dupont analysis) that can be used to confirm whether Graham’s ratios reflect efficiency or the opposite, especially in relation to peers. I’ve still got a lot to learn when it comes to investing!

For example, most companies today try to minimise the amount of capital that is tied up in inventory and raw materials on hand. That tends to result in fewer current assets on the balance sheet and thus lower current ratio’s and Graham NCAV values.