Enterprising Investor

**teenvestor** Wed Jun 28, 2006 12:57 am

Enterprising Investor
In the Intelligent Investor Benjamin Graham describes two kinds of investors, defensive and enterprising.

Enterprising investors are those who are generally more aggressive then defensive investors. They aim to achieve a higher return than defensive investors, by taking more risks and buying more than just common stocks. Though they take more risks they make up for this with more research.

I am an enterprising investor, though I don’t take unnecessary risk, I wouldn’t put a second thought into buying a more risky company if I understand it and the margin of safety makes up for the risk I am taking.

How does an enterprising investor find companies to buy? Why not start with Graham’s own method for the enterprising investor? At least 50 software programs have been created to do the screen – make sure you don’t believe it all though.

I’ll go through the criteria then have a look at the currently passing companies.

1.Graham wrote, to narrow the list in the S&P Stock Guide first filter out all companies with a P/E above 9.
2.Financial Condition
a.Current Ratio > 1.5
b.D/E less than 1.1
3.Earnings Stability
a.Positive earnings in each of the last five years.
4.Dividend Record
a.Positive current dividend
5.Earnings Growth
a.This year’s earnings more than earnings five years ago.
6.Price
a.Price/Book

Any companies that pass the seven criteria above should be a good buy. Because Graham was 100% mathematical (with the possible exception of his purchase of GEICO) and dismissed any issue of business quality, before one buys any companies passing this screen he must first do his due diligence on the company.

I am using the screen at AAII partly because the company is not for profit and also because I have used it screens for a year and like them. Currently three companies pass the screen:

Ashland Inc. (ASH) – Ashland operates in two sectors: Chemicals and Transportation Construction. Thought its current P/E is 2.2 its forward P/E is 15.4, this throws a red flag in front of my analysis and it stopped there, I may look further into Ashland in the future.

POSCO (PKX) – POSCO is and ADR which produces steel in Korea. I don’t know much about steel – though I made 150% on a metal management company using fake money and technical analysis a few years ago – but this company trades at about 5x earnings and has an ROE of 23% this is one I will do more analysis on.

Blair (BL) – According to Google, Blair is, “engaged in the sale of fashion apparel for men and women, plus a range of home products.” I have to say I probably don’t have much idea how to evaluate this business, and its ROE of only 13% makes it even less attractive.[url][/url]

**Value-Investing-Forum** Sun Jul 09, 2006 11:30 pm

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