Graham Defensive Investor

What it is\nFrom The Intelligent Investor, chapter 14. Graham distinguished between the defensive investor (passive, wants to avoid mistakes) and the enterprising investor (active, willing to do hard analytical work). For the defensive investor, he laid out seven concrete criteria:\n\n1. Adequate size: > $100M revenue (today: > $500M)\n2. Strong financial condition: current ratio > 2, long-term debt < net current assets\n3. Earnings stability: positive earnings every year for at least 10 years\n4. Dividend record: uninterrupted payments for 20 years\n5. Earnings growth: 33%+ growth over 10 years (3% per year)\n6. Moderate P/E: < 15 of last 3 years' average earnings\n7. Moderate price-to-book: P/E × P/B < 22.5\n\n## Why it's still relevant\nThe rules look quaint, but they encode three timeless principles:\n- Avoid leverage (rules 2)\n- Demand a long track record (rules 3, 4)\n- Don't overpay (rules 6, 7)\n\nA stock that passes all seven is genuinely conservative — Graham's defensive investor was supposed to be unable to lose much. Backtests show the criteria still produce above-market returns with below-market drawdowns over multi-decade horizons.\n\n## Modern adjustments\n- The dividend criterion has become harder to meet as quality compounders increasingly buy back shares instead of pay dividends. Many practitioners substitute "20-year capital return record" (dividends + buybacks).\n- The P/B requirement is easier to meet in capital-intensive sectors and harder in tech — sector adjustments are common.