The following are three (3) different ways of considering whether an equity investment is worthy.
When combining all three ways, there could be greater worthiness of the prospective equity investment.
I. The Greenblatt Way
- Second, check the balance sheet with preference to a quick ratio and current ratio of one (1), which makes it possibly worthy.
- Third, does the company have a history of dividends over 5 years? If yes, it may be worthy.
II. The Graham Way
- First, review earnings yield (EY) > 2X 5-year AAA corporate bond and/or PE < 1/(2 X 5-year AAA corporate bond).
- Second, investigate dividend yield (DY) => 5-year AAA corporate bond.
- Third, ensure the current ratio > 2.
The above screening tactics look for margins of safety.
III. The Tweedy Browne Way
- First, it is good when the company buys back shares.