By Timothy Lutts, Chief Investment Strategist
Cabot Benjamin Graham Value Investor is based on the teachings, naturally, of Benjamin Graham. He’s the fellow who taught Warren Buffet about value investing back at Columbia University. Another student of Graham was Wilson Payne, who earned a doctorate and became a teacher at Babson College...where he taught J. Royden Ward. Eventually, Dr. Payne and Roy Ward teamed up to turn the Graham system into a computer program.
Throughout the 1970s, 1980s and 1990s, Roy used this system in his investing work, growing increasingly comfortable with it. Having found a system that not only works but also suits his personality, there was no reason to change. In that regard, Roy’s a paragon, a perfect example to emulate.
In 2003, Roy joined the Cabot family, adding this long-established value investing system to our stable of growth-oriented letters so that thousands of investors worldwide could benefit from his system.
Now, technically, anyone could reproduce this system; after all, Benjamin Graham’s teachings are well known; he wrote two great books detailing his methods. But practically, I’ve got to say it’s a bear of a job. For each stock in his universe, Roy tracks 44 separate items that size up the company using four separate sets of factors, Quality, Value, Growth and Technical.
Quality encompasses measures like Current Ratio, Earnings Stability and Price Growth Stability.
Value tracks items like P/E ratio, Historical Price/Book Value relative to Current Price/Book Value, and Historical Price/Dividend ratio versus Current Price/Dividend Ratio.
Growth looks at things like 5- and 10-year historical revenue growth trends, Quarterly Earnings Acceleration and 5-year projected cash flow.
Technical measures things like Relative Strength, Price Stability and Industry Strength.
And there are 32 more items! But you don’t need to worry about those details, because Roy does all the work and presents the results, each month, in a 12-page letter that tells you in plain English what to buy and why.
Benjamin Graham’s system, of course, is very big on keeping risk low. You only buy a stock when it’s below its Maximum Buy Price. And you don’t sell a stock until it reaches its Minimum Sell Price.
The result? For more than 80 years, through Benjamin Graham, then Warren Buffet, Wilson Payne and now Roy Ward, this system has delivered an annualized return of 20% in almost every kind of market.
Admittedly, there are more exciting ways to invest, and Cabot has newsletters that can satisfy thrill-seekers as well. But, if you like the idea of buying low and calmly hanging on; if you like the thought of going on a cruise and not worrying about being out of touch with the market for days at time while your stocks appreciate; and if you like the “low risk” that comes from buying stocks when they’re dirt cheap, I’m guessing Cabot Benjamin Graham Value Investor is the advisory that’s right for you.
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