Graham’s Last Will Screen–List of Stocks

Benjamin Graham is probably one of the foremost gurus in Value Investing. His tenets have been proved true over and over, for the past 75 years. His ‘Intelligent Investor’ (II) is a must read for any investor. The more financially inclined can also peruse ‘Security Analysis’ (SA) although it is way more involved than the former one.

Anyway, in this blog post, I am listing out stocks which have passed the Graham’s Last Will statement. What does the ‘Last Will’ mean? Well, the story goes that when Graham initially wrote II&SA, he came up with 10 criteria to find undervalued stocks, which over long term would comfortably beat the market. However, as the years passed by, Graham shortened the 10 criteria and just before his death (and hence Last Will), he came up with 4 criteria which he claimed would comfortably beat the market.

I have come up with the list of stocks using the wonderful ValuePickr screener.

Graham’s 10 criteria for picking up undervalued stocks (written way back in the 1930s and still serve as an extremely good guidance to pick up stocks) were –

1. An earnings-to-price yield at least twice the AAA bond rate

2. P/E ratio less than 40% of the highest P/E ratio the stock had over the past 5 years

3. Dividend yield of at least 2/3 the AAA bond yield

4. Stock price below 2/3 of tangible book value per share

5. Stock price below 2/3 of Net Current Asset Value (NCAV)

6. Total debt less than book value

7. Current ratio greater than 2

8. Total debt less than 2 times Net Current Asset Value (NCAV)

9. Earnings growth of prior 10 years at least at a 7% annual compound rate

10. Stability of growth of earnings in that no more than 2 declines of 5% or more in year end earnings in the prior 10 years are permissible.

Needless to say, when I ran these criteria over today’s list of Indian stocks, the number of stocks dwindled down to 0 by Criteria No. 5.

(I took the recent SBI Bond rate as the AAA bond rate. SBI bonds were being offered at 9.25% for a 10 year bond (I approximated the AAA bond rate to be 9% for easier calculations))

However, Graham in his Last Will (it’s actually called Last Will and Testament) suggested 4 simple criteria which would stand the test of time and comfortably beat the market (and thanks to Jae Jun’s incredible back testing skills on the American Stock Market (you can check out the performance using these 4 criteria on US markets; I would wager that similar performance can be observed in the Indian markets too!) – btw, Jae Jun is fantastic. You have to follow his blog). The four criteria were –

1. An earnings-to-price yield at least twice the AAA bond rate

3. Dividend yield of at least 2/3 the AAA bond yield

6. Total debt less than book value

7. Current ratio greater than 2

Well, I took these 4 criteria  and ran it on ValuePickr screener (and I did try to back test on ValuePickr, but couldn’t – I wasn’t able to get values for previous years on the screener) and these were the results –

Company Current Ratio D/E Div Yield% Earnings Yield % Industry
Alufluoride 3.22 0 8.82 25.21 Inorganic Chemicals
Amrutanjan Health Care 7.95 0 8.3 42.78 Pharma
Anuh Pharma 2.39 0.01 6.85 18.68 Pharma
Bhagiradha Chemicals & Industries 2.52 0.48 7.06 44.33 Pesticides & Agro Chemicals
Ecoboard Industries 3.6 0.41 11.35 19.36 Other Machinery
Flex Foods 3.27 0.41 6.42 21.62 Food & Beverages
Helios & Matheson Information Technology 8.92 0.57 6.5 33.8 Computer Software
Indage Vintners 4.34 0.71 9.76 121.36 Food & Beverages
K C P 2.57 0.72 33.17 154.44 Construction Materials
Nissan Copper 3.85 0.95 16.3 102.62 Non Ferrous Metals
Oriental Hotels 2.48 0.67 23.37 40.38 Hotels & Resteurants
Panoramic Universal 27.4 0.88 12.17 71.49 Computer Software
Rajkumar Forge 6.93 0.45 6.39 19.57 Castings & Forgings
Zenith Birla (India) 2.04 0.65 39.6 21.56 Steel

The deal with the results is that these stocks need to be moved out of the portfolio every year and re-invested in stocks which fulfill these criteria the following year (much like Magic Formula investing)

(Total debt less than Book Value gives the exact same results as D/E < 1 (obvious) – so, you can run this screen either way on other screeners)

Any thoughts on the stock above? Should we (or can we) refine this further? Any way to back test these criteria? Inputs appreciated.


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  1. #1 by Santosh on January 9, 2011 - 1:15 PM

    Hi Kiran,

    This is fantastic compilation of the criteria! Really helpful. Anuh Pharma, Helios & Matheson Information Technology, Oriental Hotels, Panoramic Universal look quite strong & under-valued.

    You may also want to look at Gandhi Special Tubes, Tide Water company, Oriental Carbon & Chemicals & Transformers & Rectifiers. Not aware if they are all 10 year old companies & but their current financials & valuation definitely looks interesting.


  2. #2 by Kiran on January 9, 2011 - 3:02 PM

    Hi Santosh,

    Thanks – I am sure they are under valued, but the question is, are they undervalued for some reason by the Market? There are two approaches to this – either take this portfolio as it is and create a portfolio. Alternatively, dig further into these stocks and figure out if each of those stocks fit your risk-return criteria and then invest.

    I already wrote a blogpost on Gandhi Special Tubes (

    Transformers & Rectifiers is expensive at these levels. Will wait it out on this stock.

    Haven’t researched on Tide and Oriental. Will have a look.

  3. #3 by Ayush Mittal on January 11, 2011 - 8:31 PM

    Hi Kiran,

    I think there is an updation error in the screener results and hence the stocks seem to be attractive. In some of the cases corporate actions might have not been updated.

    I have tracked most of the cos mentioned above and I feel they are down due to right reasons. Some of the above cos are not in good health and some are with dubious financials and promoter track record.


  4. #4 by Kiran on January 11, 2011 - 9:55 PM

    Hi Ayush,

    Really? Hmm – I am not too sure of the screener sometimes too Ayush; it throws up wrong RoCE and RoEs for a few stocks.

    Siddharth did allude to one-time dividend of some companies here which bumps up the dividend yield (the way it is calculated at ValuePickr now) and hence the results might be wrong that way too.

    I guess, since we know the screener might have thrown up wrong results, we cannot use this data. We just have to wait for a better screener or improved data from ValuePickr before we implement this strategy.

    On the other hand, to your point of bad companies etc, I guess Graham did not care what these companies did or how they performed as long as his 3 criteria were met. His hypothesis was diversification along with a longer time period would give you better returns than analyzing each of these companies. And that too, beating the index handsomely. I forget, but I think it was Tweedy Browne who had published a study – statistical parameters like these were supposed to perform better than analyzing a group of companies.

    My last point – I am not sure if this works/worked for Indian companies, because the dynamics are different here (lack of shareholder activism, very few working capital bargains translating into real returns etc.), but would be a good one to track – either on paper or by investing some amount – and check returns. After all, we are all in this game for the long term.

  5. #5 by Chirag on January 13, 2011 - 12:19 PM

    Nice list.
    I haven’t tried them yet. But how significant are these numbers ?

  6. #6 by Kiran on January 14, 2011 - 9:50 PM

    Hi Chirag,

    Which numbers are you talking about Chirag?

    If it is Graham’s criteria, I think that’s pretty much standard and written in stone.

    If it is the list of stocks and their values, then you have every reason to question the numbers for two reasons –

    a) ValuePickr database might not be updated/Values might be calculated incorrectly
    b) Some of these stocks declared a one-time dividend, bumping up the dividend yield. Hence the data might be erroneous.

    Do you have any ideas around how to get around these two constraints?

  7. #7 by chinmay on January 24, 2011 - 10:08 AM

    Anuh(1:3), Panoramic(1:10) and Oriental Hotels(1:10) had splits/bonuses recently and the ratios are not adjusted for that.

  8. #8 by Kiran on January 24, 2011 - 11:20 AM

    @Chinmay – Absolutely spot on and agree with you.

    One-time dividends, Splits/Bonuses have not been taken into consideration in coming up with this list. We need to refine this list further (and I have run out of ideas as to how to incorporate these automatically in screeners).

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