Value Investing Across Countries And Economies

Customizing the seventeen-rule framework of Benjamin Graham — Warren Buffett's mentor — for non-U.S. currencies, Interest Rates and Inflation.

Example - U.K.

Although Graham's framework comprises primarily of ratios that are self-calibrating, there are a few region-specific parameters that may need to be customized if one is investing in countries other than the United States.

Shown below is one such customization using the currency conversion rates, interest rates and Consumer Price Index (CPI) values of the United Kingdom.

1. Size in Sales

The first region-specific parameter in Graham's framework is the Size rating.

Graham recommended a minimum Sales figure of $100 million for Defensive grade stocks, which works out to around $500 million today based on the increase in CPI in the United States.

Since the Pound Sterling (GBP) is worth roughly 1.28 times the United States Dollar (USD) today, and since GrahamValue lists values for U.K. stocks in GBP, the Sales rating will simply need to be reduced by 1.28 times to screen for Defensive grade U.K. stocks.

100 ÷ 1.28 = 78%

500 ÷ 1.28 = 390

This yields a Sales figures of £390 million, which corresponds exactly to the $500 million required for a U.S. stock. Rounding up yields a Size in Sales filter value of 80%. A Size in Sales filter value of 80% yields a Sales figures of £400 million.

Size in Sales = 80%

1a. Size in Assets

For Public-Utilities and Financial Enterprises in the U.S., Graham recommended a Total Assets figure of $50 million which works out to $250 million today.

A similar calculation yields a Size in Assets filter value of 80%. A Size in Assets filter value of 80% yields a Total Assets figures of £200 million, which corresponds closely to the $250 million required for U.S. stocks.

Size in Assets = 80%

2. Earnings Growth

An Earnings Growth rating of 100% on GrahamValue corresponds to an actual earnings growth of 33% over the past ten years, just as Graham recommended for U.S. stocks.

Since the change in CPI in the U.K. over the last decade is almost identical to this number — 32% — this rating requires no real adjustment for the U.K. (and actually requires adjustment today in the U.S.).

Earnings Growth = 100%

3. Intrinsic Value

Intrinsic Value is the price corresponding to a stock's Graham Grade: Defensive, Enterprising or NCAV (Net-Net).

a. Defensive

The Intrinsic Value of a Defensive grade stock is the same as its Graham Number.

Graham Number = Square Root of (22.5 x EPS x BVPS)

Graham Number(%) = Graham Number ÷ Previous Close

A Graham Number(%) of 70% on GrahamValue corresponds to the 10-year AA Corporate Bond Yield of 3.3% in the U.S. today.

Since similar Bond Yields in the U.K. are now close to 2.3%, this allows for a P/E ratio of up to 43. The Graham Number of a stock would need to be multiplied by 1.70 to adjust it to a P/E of 43. This corresponds to an Graham Number(%) of 59% on GrahamValue, which can be rounded up to 60%.

Graham Number(%) = 60%

b. Enterprising

Enterprising grade stocks too would need to have their Intrinsic Value(%) adjusted similarly, as both calculations are based on similar principles.

Serenity Number = Square Root of (12 x EPS x BVPS)

Intrinsic Value(%) = Intrinsic Value ÷ Previous Close

Intrinsic Value(%) = 60%

c. NCAV (Net-Net)

NCAV figures are calculated based on assets alone, and so NCAV (Net-Net) grade stocks do not require having their Intrinsic Value(%) adjusted.

NCAV = (Current Assets - Total Liabilities) ÷ Shares Outstanding

NCAV or Net-Net(%) = NCAV Price (Net-Net) ÷ Previous Close

NCAV or Net-Net(%) = 100%

Graham Stock Screeners

The below links will open the Classic Graham Screener and Advanced Graham Screener with all U.K. exchanges selected. The Advanced Graham Screener will have the adjusted parameters discussed above selected as well.


U.K. stocks are often traded in GBX (or GBp) while their financials are reported in GBP. GrahamValue takes care of this 100x conversion..

For all other currency discrepancies, the stock's Previous Close is marked Zero.

John Templeton

Sir John Templeton, creator of the world's largest international investment funds — and student of Graham — writes:

"If you search worldwide, you will find more bargains—and possibly better bargains—than in any single nation."

Warren Buffett

All else being equal, the location of a company does not affect the evaluation of its investment worthiness. The same framework can applied across countries and regions. Warren Buffett says:

Graham Resources