Testing some of Benjamin Graham’s Stock Selection Criteria: A Case of the FTSE Bursa Malaysia EMAS Index from Year 2000 to 2009
ABSTRACT: Benjamin Graham,
also known as the “father of value investing” proposed that investment in the
stock exchange can be
a safe endeavor
while receiving gains
that outperform the
market if the
investor makes carefully thought
out purchases. This study aims to determine if the use of some of Benjamin
Graham’s stock selection criteria is able to generate returns that are
significantly greater than the returns in the stock exchange of Malaysia,
particularly, the comprehensive
FTSE Bursa Malaysia
EMAS Index. This
study collected secondary data
regarding fundamentals of companies listed in the FTSE Bursa Malaysia EMAS
Index from the year 2000 to 2009. Five criteria were set up in this research
based on one or a combination of price-to-earnings ratio,
price-to-book value, current
ratio and dividend
yield. The listed
companies were screened using those criteria. An equally
weighted portfolio was created using the screened companies and their one-year
and two-year returns calculated. The returns
were compared to the market return. Hypotheses of this research were
tested using t-test statistic to determine the significance of the data. This
research found that most of the screening criteria used generated returns that
were higher than the market return in almost every year they were tested in.
Benjamin Graham’s stock selection criteria although have been conceived over 80
years ago is still applicable today in the Malaysian market. Further research
can be conducted with different criteria with varying holding periods and in
different markets.
Keywords: Benjamin Graham, value investing, stock
market, stock return, price-to-earnings ratio, price-to-book value, current
ratio, dividend yield
Author: Desmond Chang
Journal Code: jpmanajemengg110023
