Definition
The Graham Number calculates a theoretical maximum price a defensive investor should pay. It's based on Graham's criteria that P/E should not exceed 15 and P/B should not exceed 1.5, with their product not exceeding 22.5.
Formula
Graham Number = √(22.5 × EPS × Book Value Per Share)
Example
For a stock with EPS of $4 and book value of $20, Graham Number = √(22.5 × 4 × 20) = √1,800 = $42.43. Graham would consider buying below this price.
FAQ
What is Graham Number?
A fair value estimate based on Benjamin Graham's value investing principles.
How do you calculate Graham Number?
A common formula for Graham Number is: Graham Number = √(22.5 × EPS × Book Value Per Share)
Why is Graham Number important?
Graham Number helps investors evaluate valuation and make more informed decisions.