Benjamin Method - Explained
What is the Benjamin Method?
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Table of ContentsWhat is the Benjamin Method?Hoe Does the Benjamin Method Work?Example of the Benjamin MethodAcademics Research on Benjamin Method
What is the Benjamin Method?
The Benjamin Method is a formula used in investment to determine the intrinsic value of stocks in a bid to find assets that are undervalued to select the most profitable assets. The Benjamin Method is a value investing strategy which is achieved through fundamental analysis of the asset. The Benjamin Method was named after Benjamin Graham, the father of value investing whose investment philosophy has helped investors and fund managers effectively select winning value stocks.
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Hoe Does the Benjamin Method Work?
Benjamin Graham was a great investment philosopher whose investment principles spanned after his lifetime. Benjamin Graham was an investor in practice, an author and economist. His investment principle or formula popularly called the Benjamin Method became prominent in the 1930s as it applies to investments. The Benjamin Method is otherwise called the strategy of value investing through which different investors can select investments and assets based on the value they offer. There are two categories of investors in the market, the short-term investors and the long-term investors. Given that the goals of the investors are different, their approach towards investing is also different. Through the strategy of value investing, investors can analyze stock data to determine assets that are systematically undervalued.
Example of the Benjamin Method
The illustration below would enhance a better understanding of how the Benjamin Method works; Investor A is interested in purchasing shares in a renowned widget company in the United States. If the company trades its stock at $80 per share, and it earns a profit of $10 annually, if a smaller company offers it stock at a cheaper rate, lets say $12 but earns a profit of only $1.5 annually, the investor will use the value investing strategy to analyze the stock data of the companies or carry out a fundamental analysis in order to select which company to invest in.