Been a fan of Montier’s for a long time and been reading his book ‘Value Investing’ lately. Some of the very, very useful things I’ve learnt. For my easy reference:

Risk (The Benjamin Graham version)

– Permanent loss of capital
– Three components to risk: Valuation, Earnings, Balance Sheet

Measured by:

1) Valuation Risk: % of stocks above G&D P/E 16
2) Business/Earnings Risk: Ratio of current EPS to avg 10-yr EPS
3) Balance Sheet/Financial Risk: Altman Z (safe: >2.6, grey: 1.1<Z<2.6, bankruptcy: <1.1)

Deep Value

1) Trailing earnings yield twice AAA bond yield
2) P/E less than 40% of peak P/E based on 5yr moving average
3) Dividend yield at least 2/3 of AAA bond yield
4) Price less than 2/3 tangible book value
5) Price less than 2/3 net current assets
6) Total debt less than 2/3 tangible book value
7) current ratio greater than 2
8) total debt less than (equal to) twice net current assets
9) compound earnings growth at least 7% over 10 yrs
10) two of fewer annual earnings decline of 5% or more in last 10 years.

– Percentage of stocks meeting 1,3,6.

Overvalued or Short-selling

1) P/S as a measure of overvaluation.
2) Piotroski F-score 0-3
3) Total asset growth more than (equal to) 10%

Simple Ranking system based on:
P/E, P/B. P/S, FCF/P, EBIT/EV

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