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Benjamin Graham Investing: What Stocks In Singapore Would Interest Warren Buffett’s Mentor Today?

Warren Buffett’s arguably the best investor alive today. He’s also one of the most popular and well-known investors around, judging by how tens of thousands of people have flocked to each annual shareholders’ meeting of his investment vehicle, Berkshire Hathaway, in recent years.

Standing on the shoulder of a giant

But Buffett wasn’t born with the skills to invest. He had to learn how to do so. And, he learnt it from a less well-known, but still very successful investor, Benjamin Graham.

Graham was more than just an investor though. He was an exceptionally intelligent man – before he graduated from Columbia College, he was actually offered a teaching position in three different departments: English, Greek and Latin, and Mathematics. Fortunately for the finance community, Graham had decided to dedicate the bulk of his adult years to investing.

During his career, Graham had penned two investing books that eventually became classics: Security Analysis and The Intelligent Investor. The impact of the latter on the world of investing cannot be overstated – Buffett has publicly said that the book “changed [his] life.”

Investing with a legend

Graham was the one who popularised value investing, which is the concept of buying stocks for less than what their businesses are worth.

When he was investing money professionally, one of the methods he used to determine if a stock was a bargain was to compare a stock’s market capitalisation with its net current asset value. (The net current asset value of a stock can be found by subtracting a stock’s total liabilities from its total current assets). Graham wanted to find stocks with market caps that are lower than their net current asset values. Such stocks are also known as net-net stocks.

The problem with net-net stocks is that they are typically mediocre companies at best, or poor at worst. Companies that become net-net stocks often have no competitive advantages and can be in serious business trouble. That’s why Graham advocated diversifying widely when investing in net-net stocks.

Applying it today

I wanted to see what stocks in Singapore’s market today would qualify as net-net stocks, using the database of S&P Global Market Intelligence.

Turns out, there are currently over a 100 net-net stocks out of more than 700 Singapore-listed companies. But, I also wanted to refine my search to companies that are facing less risks. To do so, I added two more criteria: (1) A debt-to-equity ratio of less than 50%, and (2) a positive net income over the last 12 months. They are meant to help find companies that are not dangerously leveraged and that are profitable.

At the end, 12 names filtered through. Here are three I randomly chose: AP Oil International Ltd (SGX: 5AU), Creative Technology Ltd (SGX: C76), and SP Corporation Limited (SGX: AWE).

ap-oil-creative-technology-sp-corp-net-net-table
Source: S&P Global Market Intelligence

The trio of AP Oil, Creative Technology, and SP Corporation could be companies that could interest Graham in the Singapore market of today given their low valuations and financial characteristics.

But it’s worth noting that none of the above should be seen as formal recommendations of the three aforementioned stocks or the use of the net-net methodology to pick stocks. Instead, see the information presented in this article as useful starting points for further research.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.