{"id":1322,"date":"2025-05-18T02:58:59","date_gmt":"2025-05-18T02:58:59","guid":{"rendered":"https:\/\/www.bearsavings.com\/blog\/?p=1322"},"modified":"2025-05-18T02:59:03","modified_gmt":"2025-05-18T02:59:03","slug":"understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks","status":"publish","type":"post","link":"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/","title":{"rendered":"Understanding the Benjamin Graham Formula: A Timeless Method for Valuing Stocks"},"content":{"rendered":"<div style=\"margin-top: 0px; margin-bottom: 0px;\" class=\"sharethis-inline-share-buttons\" ><\/div>\n<p class=\"wp-block-paragraph\">When it comes to value investing, few names are as revered as <strong>Benjamin Graham<\/strong>. Often referred to as the \u201cfather of value investing,\u201d Graham was not only Warren Buffett\u2019s mentor, but also the mind behind a formula that has stood the test of time: the <strong>Benjamin Graham Formula<\/strong> for estimating the intrinsic value of a stock.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this post, we\u2019ll explore:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The origins of the Graham formula<\/li>\n\n\n\n<li>How it evolved over time<\/li>\n\n\n\n<li>How to apply it with real examples<\/li>\n\n\n\n<li>And how you can use our <a href=\"https:\/\/www.bearsavings.com\/tools\/benjamin-graham-calculator\/\">Benjamin Graham Calculator<\/a> to simplify your analysis<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_89 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Who_Was_Benjamin_Graham\" >Who Was Benjamin Graham?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#The_Origins_of_the_Graham_Formula\" >The Origins of the Graham Formula<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Original_Formula\" >Original Formula:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#The_Revised_Graham_Formula\" >The Revised Graham Formula<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Revised_Formula\" >Revised Formula:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Why_the_Graham_Formula_Still_Matters\" >Why the Graham Formula Still Matters<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#How_to_Use_the_Benjamin_Graham_Formula_in_Practice\" >How to Use the Benjamin Graham Formula in Practice<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Example_ABC_Corp\" >Example: ABC Corp<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Pros_and_Cons_of_the_Graham_Formula\" >Pros and Cons of the Graham Formula<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#%E2%9C%85_Pros\" >\u2705 Pros:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#%E2%9D%8C_Cons\" >\u274c Cons:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Tips_for_Using_the_Formula_More_Effectively\" >Tips for Using the Formula More Effectively<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Who_Should_Use_the_Graham_Formula\" >Who Should Use the Graham Formula?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.bearsavings.com\/blog\/understanding-the-benjamin-graham-formula-a-timeless-method-for-valuing-stocks\/#Final_Thoughts\" >Final Thoughts<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_Was_Benjamin_Graham\"><\/span>Who Was Benjamin Graham?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/en.wikipedia.org\/wiki\/Benjamin_Graham\" title=\"Benjamin Graham\">Benjamin Graham<\/a> (1894\u20131976) was a renowned economist, investor, and professor at Columbia Business School. His books <em>Security Analysis<\/em> (1934) and <em>The Intelligent Investor<\/em> (1949) laid the foundation for modern value investing.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Graham emphasized investing in businesses that trade <strong>below their intrinsic value<\/strong>, focusing on margin of safety, solid fundamentals, and a long-term outlook.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">His teachings deeply influenced legendary investors like Warren Buffett, Seth Klarman, and Joel Greenblatt.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Origins_of_the_Graham_Formula\"><\/span>The Origins of the Graham Formula<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">In his 1974 revision of <em>The Intelligent Investor<\/em>, Graham proposed a simple formula for estimating the intrinsic value of a stock based on earnings and growth:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Original_Formula\"><\/span><strong>Original Formula:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Intrinsic Value = EPS \u00d7 (8.5 + 2g)<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Where:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>EPS<\/strong> = Earnings Per Share (Trailing Twelve Months)<\/li>\n\n\n\n<li><strong>g<\/strong> = Expected Annual Growth Rate (in %)<\/li>\n\n\n\n<li><strong>8.5<\/strong> = Graham\u2019s assumed P\/E ratio for a no-growth company<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This formula allowed investors to quickly estimate how much a stock might be worth based on its earnings power and projected growth.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Revised_Graham_Formula\"><\/span>The Revised Graham Formula<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Graham later acknowledged that the original formula didn\u2019t account for interest rates or inflation. So he introduced an updated version:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Revised_Formula\"><\/span><strong>Revised Formula:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Intrinsic Value = [EPS \u00d7 (8.5 + 2g) \u00d7 4.4] \/ Y<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Where:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>4.4<\/strong> = Average corporate bond yield in Graham\u2019s era<\/li>\n\n\n\n<li><strong>Y<\/strong> = Current AAA corporate bond yield<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This adjustment made the formula more flexible across different interest rate environments.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_the_Graham_Formula_Still_Matters\"><\/span>Why the Graham Formula Still Matters<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">While the formula is not a one-size-fits-all tool, it offers:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A <strong>baseline valuation<\/strong> for conservative investors<\/li>\n\n\n\n<li>A <strong>quick screen<\/strong> for undervalued stocks<\/li>\n\n\n\n<li>A <strong>foundation<\/strong> for deeper analysis<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">It forces investors to focus on earnings and growth rather than market hype. In today\u2019s world of meme stocks and volatility, Graham\u2019s approach offers clarity.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As Warren Buffett puts it:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\u201cThe market is there to serve you, not to guide you.\u201d<\/p>\n<\/blockquote>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Use_the_Benjamin_Graham_Formula_in_Practice\"><\/span>How to Use the Benjamin Graham Formula in Practice<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s walk through an example using the revised formula.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Example_ABC_Corp\"><\/span>Example: ABC Corp<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>EPS<\/strong>: $5<\/li>\n\n\n\n<li><strong>Expected Growth Rate (g)<\/strong>: 6%<\/li>\n\n\n\n<li><strong>Current AAA Bond Yield (Y)<\/strong>: 5.5%<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Step 1:<\/strong><\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Intrinsic Value = [5 \u00d7 (8.5 + 2\u00d76) \u00d7 4.4] \/ 5.5<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Step 2:<\/strong><\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">= [5 \u00d7 (8.5 + 12) \u00d7 4.4] \/ 5.5<br>= [5 \u00d7 20.5 \u00d7 4.4] \/ 5.5<br>= 451 \/ 5.5<br>= <strong>$82<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">If the current market price of ABC is $60, the formula suggests it&#8217;s undervalued by 27%.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Want to skip the math? Use our <a href=\"https:\/\/www.bearsavings.com\/tools\/benjamin-graham-calculator\/\">Benjamin Graham Calculator<\/a> to plug in the values and get the result instantly.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros_and_Cons_of_the_Graham_Formula\"><\/span>Pros and Cons of the Graham Formula<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"%E2%9C%85_Pros\"><\/span>\u2705 <strong>Pros:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Easy to use<\/li>\n\n\n\n<li>Requires only a few inputs<\/li>\n\n\n\n<li>Encourages a long-term mindset<\/li>\n\n\n\n<li>A great first-pass filter for fundamental investors<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"%E2%9D%8C_Cons\"><\/span>\u274c <strong>Cons:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Sensitive to estimated growth rate (g)<\/li>\n\n\n\n<li>Doesn\u2019t factor in debt, cash, or industry-specific nuances<\/li>\n\n\n\n<li>Not suitable for companies with negative or volatile earnings<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This is why Graham himself emphasized using the formula <strong>only as a guideline<\/strong>, not an absolute rule.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Tips_for_Using_the_Formula_More_Effectively\"><\/span>Tips for Using the Formula More Effectively<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Be conservative with growth assumptions<\/strong>: Aim low, avoid optimism.<\/li>\n\n\n\n<li><strong>Use trailing 12-month EPS<\/strong>: Avoid forward earnings unless you\u2019re confident in their accuracy.<\/li>\n\n\n\n<li><strong>Cross-check with other models<\/strong>: Like discounted cash flow (DCF) or EV\/EBITDA comparisons.<\/li>\n\n\n\n<li><strong>Filter for quality companies<\/strong>: Strong balance sheets, consistent earnings, and high return on capital.<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_Should_Use_the_Graham_Formula\"><\/span>Who Should Use the Graham Formula?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Long-term value investors<\/li>\n\n\n\n<li>Beginners learning valuation principles<\/li>\n\n\n\n<li>Analysts building screening tools<\/li>\n\n\n\n<li>Conservative investors looking for margin of safety<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s especially useful for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Dividend-paying blue chips<\/strong><\/li>\n\n\n\n<li><strong>Mature, stable businesses<\/strong><\/li>\n\n\n\n<li><strong>Low-volatility sectors<\/strong> (e.g., consumer staples, industrials)<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Final_Thoughts\"><\/span>Final Thoughts<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Benjamin Graham Formula is more than a relic of investing history\u2014it\u2019s a timeless framework that still works for investors who value <strong>discipline, fundamentals, and long-term thinking<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While the formula isn\u2019t perfect, it offers a rational approach in an often irrational market. Whether you use it as a starting point or a core part of your valuation toolkit, it belongs in every investor\u2019s arsenal.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Want to give it a try? Head over to our <a href=\"https:\/\/www.bearsavings.com\/tools\/benjamin-graham-calculator\/\">Benjamin Graham Calculator<\/a> and see what your favorite stocks are really worth.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Have a valuation story using the Graham Formula? Drop it in the comments\u2014we\u2019d love to hear how you use it in your investing journey.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When it comes to value investing, few names are as revered as Benjamin Graham. Often referred to as&#8230;<\/p>\n","protected":false},"author":1,"featured_media":1323,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[40],"tags":[],"class_list":["post-1322","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","article","has-background","has-excerpt","has-avatar","has-author","has-date","has-comment-count","has-category-meta","has-read-more","has-post-media","thumbnail-"],"aioseo_notices":[],"aioseo_head":"\n\t\t<!-- All in One SEO 5.0.5 - aioseo.com -->\n\t<meta name=\"description\" content=\"Discover the Benjamin Graham formula, its origins, how to apply it, and how to use our calculator to estimate a stock\u2019s intrinsic value with confidence.\" \/>\n\t<meta name=\"robots\" content=\"max-image-preview:large\" \/>\n\t<meta name=\"author\" content=\"DA\"\/>\n\t<link rel=\"canonical\" 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