Calling for a Substitution

In addition to using simplified price-to-earnings and debt metrics to pick stocks in the 60-year study he completed in the mid-1970s, Ben Graham also noted that you could substitute asset-to-price measures and achieve similar results.

This is something of a relief to me as I have found that over the past 40 years the reliability of earnings measures has become somewhat suspect. Using the generous accounting standards, strategic buybacks and other financial engineering shenanigans, most CFOs can make the earnings number come out where they want each quarter. Not everyone does this, but enough do that earnings, and consequently price-to-earnings ratios, are a bit trickier to use when searching for stocks. It will come as no shock that I prefer to use book value in my search for stocks....584 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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