Saturday, November 13, 2010
"An observation from Benjamin Graham on finding stock value when markets are up and margins of safety are thin"
Benjamin Graham in his landmark investing book "The Intelligent Investor" notes that more money has been lost in the stock market by individuals buying secondary, lower quality company stocks at a value than from buying high quality stocks with a reasonable price premium attached to them when stock markets are at higher levels or have run up. Such is the situation we find ourselves in today with many of the better quality stocks being sold and purchased with a substantial premium attached to their price. So one should be cautious stockpicker at this time. One method to increase your odds of success in these times is to buy quality stocks that pay a dividend premium which attached together with their mild growth capital gain, will give you a good overall annual return.
craze and is very well managed. AT&T Inc. (Symbol T, $28.46) has a tidy dividend that pays 5.9% out of their never ending pile of cash. Amazingly the company has a 5 year sales growth of 24.45% according to the stats in SmartMoney. 17.80 % net profit margins and the company is projected to earn $2.49 per share. I can picture a total return here of 16 -18% with very little downside risk.
So be careful out there as the captain of your financial ship. When you are driving through icebergs, don't have the throttle on full speed ahead.
We all know what happens when you do that!
Have a good weekend and good luck with your fantasy football team.