graham-value-investing_skill

Overview

This skill implements Benjamin Graham’s deep value investing framework focused on margin of safety and buying at deep discounts to intrinsic value. It codifies Net-Net screening, the Graham valuation formula (with bond yield adjustment), and a multi-factor scoring system to support buy/observe/sell decisions. The skill is designed for disciplined, capital-protecting value investors seeking systematic screening and valuation guidance.

How this skill works

The skill computes intrinsic value using Graham’s formula (V = EPS × (8.5 + 2g), adjusted by prevailing AAA bond yield when needed) and measures margin of safety against the current market price. It performs a strict Net-Net calculation (current assets minus total liabilities, per share) and applies liquidity, leverage, profitability, and stability filters. Finally it aggregates weighted sub-scores (safety, financial health, earnings quality, valuation) into a 0–100 score with thresholds for buy/hold/avoid.

When to use it

• Screening undervalued, traditional or cyclical companies where balance-sheet metrics matter
• Seeking disciplined entry points with defined margin-of-safety thresholds (≥30%)
• Evaluating small or neglected stocks with strong asset coverage or recurring earnings
• Running systematic value checks during bear markets or panic-driven sell-offs
• Filtering out growth-oriented or intangible-heavy businesses unsuitable for balance-sheet value methods

Best practices

• Use conservatively estimated growth rates (g) based on 3–5 year EPS averages and industry context
• Verify net-net calculations on a per-share basis and confirm no off-balance-sheet liabilities or major contingencies
• Require liquidity and leverage thresholds (current ratio ≥2.0, current assets ≥2× total liabilities) before considering purchase
• Combine quantitative scores with qualitative checks (management integrity, litigation, regulatory risk)
• Treat Net-Net hits as high-conviction but rare opportunities; expect low frequency in modern markets

Example use cases

• Identify small-cap manufacturing companies trading below 2/3 of Net-Net per-share value for potential deep-value purchases
• Run batch valuation across a watchlist to highlight stocks with ≥30% margin of safety per Graham formula
• Score candidates for a concentrated, capital-preserving value portfolio using the 0–100 rubric
• Reject tech or high-intangibles firms automatically and focus analyst time on balance-sheet-rich targets
• Monitor bond yield adjustments to Graham valuation when AAA yields deviate materially from historical averages