📖Benjamin Graham

P/B Ratio Standard

🌿 Intermediate★★★★★

Only buy stocks priced at no more than 1.5 times book value to ensure a tangible asset backing.

💬

Current price should not be more than 1.5 times the book value last reported.

— _The Intelligent Investor_，1949

🏠 Everyday Analogy

Buying stocks is like buying a second-hand house. If the renovation cost 1 million, you should offer no more than 1.5 million. Beyond that price, no matter how beautiful the house is, you might just be paying for someone else’s excessive upgrades. The price-to-book ratio is the ruler that helps you judge whether you’re getting your money’s worth.

📖 Core Interpretation

The stock price should not exceed 1.5 times the book value.
💎 Key Insight：Book value represents the accounting floor of a company's worth. Graham's 1.5x ceiling ensures you are not paying a large premium over tangible assets. This criterion is especially protective in downturns, when market sentiment collapses and only asset backing prevents catastrophic losses.

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❓ Why It Matters

Book value provides asset backing; a ratio above 1.5x indicates paying a premium for intangible assets.

🎯 How to Practice

Calculate the price-to-book ratio (P/B) and identify stocks with a P/B < 1.5. Ideally, these stocks should also meet both the P/E and P/B criteria simultaneously.

🎙️ Master's Voice

Have the courage of your knowledge and experience.
Graham encouraged conviction in well-researched ideas. If your analysis is sound, trust it even when others disagree.

⚔️ Practical Guide

✅ Decision Checklist

  • Do I have conviction in my analysis?
  • Am I trusting my knowledge?
  • Can I act independently?

📋 Action Steps

  1. Build knowledge before conviction
  2. Trust your analysis
  3. Act on well-researched ideas

🚨 Warning Signs

  • No conviction
  • Following others
  • Doubting sound analysis

⚠️ Common Pitfalls

✕For some industries, book value is not a significant metric.
✕Consider the industry-specific characteristics.

📚 Case Studies

1
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.
2
European Insurer Re-Rating (2012)
Major European insurer traded around 0.6x P/B amid eurozone debt fears. Balance sheet stress-tested and reserves examined using conservative Graham standards.
✨ Outcome：Dividend maintained and solvency improved; market gradually re-rated shares closer to tangible book, yielding solid double-digit annualized returns.

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