Negligence or Stupidity: Millions possibly lost in wrong investments overmisquoted formula.

Innumerable analysts, research reports and online tools all over the world have been recommending stocks based on a misquoted formula. This formula, wrongly attributed to Benjamin Graham (Warren Buffet's professor and mentor at Columbia Business School), is:

"Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)"

It would be presumptuous to say this is being done deliberately since many of them seem to be using the formula themselves. But judging by the number of people using these tools and sites every day, it seems reasonable to say that the damage in wrong investments done could have cost investors millions over the years.

For example, a quick search for "Benjamin Graham formula" on Google will bring up dozens of websites, investment tools and reports using this wrong formula.

One of these online tools gets 600 unique visitors every day and reaches roughly 16,320 users and delivers about 35,910 pageviews each month. (source: http://www.statshow.com)
Another is on a domain that reaches roughly 9.5 Million users and delivers about 15 Million pageviews each month.
Yet another is a research report by the co-founder of an investment management firm.

Apart from the fact that this formula includes the subjective term "expected annual growth rate" which violates all of Graham's principles, this formula is not mentioned at all in the chapters dedicated to stock selection and a little after after this formula is mentioned, Graham says:

"Warning: This material is supplied for illustrative purposes only, and because of the inescapable necessity in security analysis to project the future growth rate for most companies studied. Let the reader not be misled into thinking that such projections have any high degree of reliability or, conversely, that future prices can be counted on to behave accordingly as the prophecies are realized, surpassed, or disappointed."

The original 1973 edition of The Intelligent Investor even has a footnote to clarify that this equation does not really give any "true value". This footnote is missing from more recent editions of the book (it's in the Endnotes section). But the above warning is still present.

A scan of the original 1973 page with the footnote is available at - www.anahin.net/misquoted
www.anahin.net, a site that replicates all of Benjamin Graham's actual and elaborate stock selection procedures, was the source of this research.

The irony of it all is that the very equation Graham intended to use to to show investors how unreliable such predictions were, is the one used the most today as "Graham's formula"!

About Anahin:

Warren Buffett is the world's most successful investor, and the world's third richest person.

For decades, he and other super investors have been using the principles taught by Benjamin Graham, their professor and mentor at Columbia Business School.
Graham wrote various definitive textbooks on investing, and gave detailed procedures for evaluating stocks.

Anahin (www.anahin.net) replicates these procedures faithfully online, evaluating thousands of stocks side by side, making it a lot easier for you to find underpriced stocks for further analysis and sound investment.

Onsite:
2510A Nantucket Drive
Houston TX 77057
USA
+1-832-231-4557

Offshore:
G-1, Sri Sai Enclave, BTM-2
Bangalore KA 560076
India
+91-9845237624

This release was published on openPR.