Benjamin Graham created two sets of stock selection criteria. One set which is more conservative for the defensive investor and another set for the enterprising investor, who is willing to take a higher risk with less stringent stock selection criteria. I will explore the stock selection criteria for the defensive investor in this article.
#1 Adequate Size of the Enterprise
Although small cap stocks can yield very high returns, Graham does not think it is suited for the defensive investor as the risk of losing money can be equally high. Hence, he has a rule of thumb to limit the size of the company for investment,
“…not less than $100 million of annual sales for an industrial company and, not less than $50 million of total assets for a public utility.”
#2 A Sufficiently Strong Financial Condition
The way to evaluate financial condition of a company is to look ......