Analysis of ModernGraham.com Track Record

For those that don't know, I consider myself to be 70% a value investor and 30% growth. With that being said, I closely follow the stock recommendations from a number of different sources that follow a similar investment philosophy to myself. One of the major sources I follow is ModernGraham.com.

ModernGraham prides itself on following the teachings of Benjamin Graham, the author of Security Analysis and the father of value investing, while taking important cues from Warren Buffett as well. Given that by today's standards it would be very difficult to find any company that passes Graham's original criteria, ModernGraham has made important adjustments to the criteria to make it applicable to today's markets. I believe these adjustments are justified but would like to see the kind of track record they have generated using the new framework.

In this sense, for my next project I have gone through the archives of ModernGraham and reviewed all of the companies that have passed their defensive investor and enterprising investor criteria from May 2008 to Feb. 2010. I would've continued all the way up to Nov. 26th 2012 but the owner of the site went on hiatus between 2010 and 2013 to focus on other things (which isn't a bad thing). Although the site started back in 2006 they changed their valuation method on Nov. 26th 2007 so I will consider only those stocks that pass the tests under this new method. All of these choices can be found within their 'Valuation' or their 'Added and Updated Valuations' posts. The returns are then calculated based on each stock being held for exactly one year from the date the post was made and then sold.

Note: Only stocks that are explicitly stated to be a good buy for either the defensive or enterprising investor while also being undervalued according to ModernGraham's valuation method are included in these calculations. Those that were considered as good choices for the Defensive investor are also assumed to be good choices for the Enterprising investor. In other words, every investment that is a good choice for the Defensive investor also has to be a good choice for the Enterprising investor but not all 'enterprising investments' make good 'defensive investments'. Additionally, if a particular stock is recommended twice through an update, it is only calculated as being repurchased if the second recommendation comes more than a year after the first given that all returns are calculated based on holding the recommended stock for one year. Finally, I used the adjusted closing price on the day of the recommendation. The adjustment implying that any splits or dividends are being accounted for. If the post was made on a weekend, the next available trading day was used.

So without further ado:

Company	Ticker	Date	Investor Type	Historical Price	Price after 1 year	Return
3M	MMM	5/5/2008	E	51.37	66.00	28.48%
Alcoa	AA	5/6/2008	E/D	34.46	9.94	(71.15%)
American Internatioal Group	AIG	5/8/2008	E/D	716.40	33.13	(95.38%)
Garmin	GRMN	5/24/2008	E	36.90	16.95	(54.07%)
American Eagle Outfitters	AEO	8/7/2008	E/D	10.24	12.32	20.31%
Olin	OLN	9/5/2008	E	18.63	13.98	(24.96%)
Gap	GPS	3/26/2009	E	11.78	21.55	82.94%
Wolverine World Wide	WWW	3/26/2009	E	7.39	13.97	89.04%
Dover	DOV	3/27/2009	E/D	20.13	35.65	77.10%
Genuine Parts Company	GPC	3/30/2009	E/D	25.03	37.45	49.62%
Goodrich Company*	GR	3/30/2009	E	37.79	71.54	89.31%
The Walt Disney Company	DIS	3/31/2009	E/D	16.99	33.04	94.47%
Microsoft	MSFT	3/31/2009	E	16.04	26.12	62.84%
Walmart	WMT	3/31/2009	E	45.89	50.04	9.04%
EV Energy Partners	EVEP	6/22/2009	E	12.13	25.20	107.75%
Hi Shear Technology	HSR	6/22/2009	E	N/A	N/A	N/A
Suburban Propane Partners	SPH	6/22/2009	E	27.67	34.97	26.38%
Teekay Tankers	TNK	6/22/2009	E	5.93	8.38	41.32%
B&G Foods	BGS	6/29/2009	E	6.74	9.35	38.72%
Burlington Northern Santa Fe	BNI	6/29/2009	E/D	N/A	N/A	N/A
Eaton	ETN	6/29/2009	E/D	19.72	29.46	49.39%
International Shipholding	ISH	6/29/2009	E	19.83	16.84	(15.08%)
Johnson & Johnson	JNJ	6/29/2009	E/D	48.55	52.17	7.46%
Nike	NKE	6/29/2009	E/D	24.13	32.32	33.94%
UnitedHealth Group	UNH	6/29/2009	E/D	23.68	27.12	14.53%
Union Pacific	UNP	6/29/2009	E/D	48.02	65.06	35.49%
Garmin	GRMN	6/29/2009	E/D	19.64	25.37	29.18%
MTS Systems	MTSC	6/29/2009	E/D	18.55	26.84	44.69%
National Presto Industries	NPK	6/29/2009	E/D	53.78	71.73	33.38%
Regal-Beloit	RBC	6/29/2009	E/D	37.83	53.34	41.00%
Norfolk Southern	NSC	7/6/2009	E/D	32.65	45.62	39.72%
Proctor & Gamble	PG	7/6/2009	E/D	44.59	52.28	17.25%
Aflac	AFL	7/13/2009	E/D	27.13	44.35	63.47%
Boeing Company	BA	7/13/2009	E/D	35.80	58.82	64.30%
Caterpillar	CAT	7/13/2009	E/D	28.12	61.03	117.03%
Chubb	CB	7/13/2009	E/D	36.60	48.16	31.58%
Cisco Systems	CSCO	7/13/2009	E	17.21	21.40	24.35%
E.I. du Pont de Nemours and Company	DD	7/13/2009	E	21.11	32.71	54.95%
Emerson Electric Company	EMR	7/13/2009	E/D	27.47	41.52	51.15%
McDonald's	MCD	7/13/2009	E	49.22	63.00	28.00%
3M Company	MMM	7/13/2009	E	53.64	76.09	41.85%
Paychex	PAYX	7/13/2009	E	20.15	22.27	10.52%
United Technologies	UTX	7/13/2009	E/D	45.71	61.73	35.05%
Pfizer	PFE	7/20/2009	E/D	12.62	12.51	(0.87%)
Exxon Mobil	XOM	7/20/2009	E/D	60.67	53.20	(12.31%)
Infosys Technologies	INFY	7/27/2009	E	39.38	56.98	44.69%
Philip Morris International	PM	9/7/2009	E	39.16	46.41	18.51%
Amgen	AMGN	9/14/2009	E	55.86	51.43	(7.93%)
Baxter International	BAX	9/14/2009	E/D	50.69	40.19	(20.71%)
Exelon	EXC	9/21/2009	E/D	40.32	35.17	(12.77%)
Olin	OLN	9/21/2009	E	14.91	17.81	19.45%
Heinz Company*	HNZ	9/28/2009	E	40.04	47.94	19.73%
Medtronic	MDT	9/28/2009	E/D	33.56	30.61	(8.79%)
National Oilwell Varco	NOV	9/28/2009	E	40.57	42.99	5.96%
Tidewater	TDW	9/28/2009	E/D	42.48	41.18	(3.06%)
American Electric Power Company	AEP	10/5/2009	E/D	24.59	30.65	24.64%
Baker Hughes	BHI	10/5/2009	E/D	39.49	42.03	6.43%
CVS Caremark	CVS	10/19/2009	E/D	35.58	28.92	(18.72%)
Nucor	NUE	10/19/2009	E/D	39.25	34.17	(12.94%)
EMC	EMC	10/26/2009	E	17.01	20.85	22.57%
Entergy	ETR	10/26/2009	E/D	62.60	61.65	(1.52%)
General Dynamics	GD	10/26/2009	E/D	58.39	58.15	(0.41%)
Halliburton Company	HAL	11/2/2009	E/D	27.87	30.29	8.68%
Monsanto	MON	11/9/2009	E	65.03	59.40	(8.66%)
Oracle	ORCL	11/9/2009	E	20.92	27.76	32.70%
Occidental Petroleum	OXY	11/9/2009	E/D	74.88	77.13	3.00%
Raytheon Company	RTN	11/16/2009	E	43.04	40.81	(5.18%)
Schlumberger NV	SLB	11/16/2009	E	63.66	69.57	9.28%
Texas Instruments	TXN	11/16/2009	E/D	23.42	28.12	20.07%
Xerox	XRX	11/23/2009	E	7.22	10.66	47.65%
Allegheny Technologies	ATI	11/30/2009	E/D	31.33	48.36	54.36%
Psychemedics	PMD	12/21/2009	E	4.48	7.17	60.04%
Automatic Data Processing	ADP	2/22/2010	E	36.81	44.89	21.95%

*Companies that no longer exist but existed at the time. These prices are do not account for splits or dividends.

Average Return for the Enterprising Investor: 24.38%

Average Return for the Defensive Investor: 20.73%

S&P500 Return over the same period: (6.54%)

Note: the share prices marked by N/A could not be found or adjusted and have been omitted.

It's safe to say that -- at least over this period -- the value-oriented methodology being followed by ModernGraham yields great results. Ideally, I would've liked to run the test over at least a period of 5 years but given the circumstances this is unrealistic. It would be even better if we could backtest the results over a period of 30 years using the same investment criteria to see how the investment process performs in a number of different environments. However, for now I'm happy with the results and am willing to place even more confidence in the value-oriented process being followed over at ModernGraham.