Benjamin Graham Revisited

Abstract

Warren Buffett read the first edition of Benjamin Graham’s book, The Intelligent Investor, in 1950. According to Buffett (Graham, Revised, 2003) “I thought then that it was by far the best book about investing ever written. I still think it is.” Can a buy and hold defensive investor use this stock selection criteria and earn a positive abnormal risk adjusted rate of return? To test this hypothesis data for 2000 and prior years are used to select stocks that meet the defensive investor criteria. Nine stocks from an original list of more than 9,000 satisfy the criteria. Buy and hold is the investment strategy and these stocks are held from the end of June 2001 until the end of December 2007. The performance measure is the time-series regression intercept, or alpha, for the four-factor model. The estimated alpha is negative but not statistically significant.