📖Benjamin Graham
Price-to-Book Criterion
Use price-to-book as a value screen for safety.
Current price should not be more than 1.5 times the book value last reported. A moderately low ratio of price to book value is another criterion for the defensive investor.
🏠 Everyday Analogy
📖 Core Interpretation
In Price-to-Book Criterion, Benjamin Graham focuses on the gap between price and value. Returns come from paying less than what a business is worth, not from guessing short-term market moves.
💎 Key Insight：Low price-to-book ratios provide a margin of safety based on assets.
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❓ Why It Matters
Ignoring valuation turns even good companies into poor investments. Overpaying compresses future returns and leaves little margin when assumptions are wrong.
🎯 How to Practice
Estimate intrinsic value with conservative assumptions, set clear buy ranges, and act only when price offers a meaningful discount with acceptable downside.
⚠️ Common Pitfalls
Confusing a low price with true cheapness
Using one metric without business context
Overly optimistic assumptions that erase margin of safety
📚 Case Studies
1
Avoiding High P/E Growth Darlings (2011)
During the run-up in popular momentum stocks, Graham-style investors rejected high P/E names such as Netflix and Salesforce based on earnings multiples far above the P/E standard.
✨ Outcome：Avoided sharp drawdowns in subsequent corrections while owning cheaper, steadier businesses that delivered superior risk-adjusted returns.
2
Post-Crisis Bank Recovery (2009)
Large U.S. bank traded below book value after 2008 crisis. Graham-style investors screened for strong capital ratios and consistent earnings history despite temporary losses.
✨ Outcome：Bought at ~0.5x P/B; as credit fears eased, valuation moved toward book, producing strong multi‑year gains.
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