Backtesting Ben Graham

Backtesting Ben Graham

By |2017-08-18T17:09:48+00:00April 17th, 2011|Research Insights, Value Investing Research|

Charles Mizrahi, over at, suggested we backtest a simple Ben Graham strategy mentioned in a 1976 article he dug up in Medical Economics. Charles has been implementing Ben Graham related strategies for many years and the live performance of his recommendations are monitored by the Hulbert Financial Digest (HFD), which helps investors sift between the “good”, “bad”, and “ugly” of the newsletter world. His newsletter, “Inevitable Wealth Portfolio” (IWP) is top-notch and worth a look for dedicated deep value investors. According to HFD, IWP is up +107.4 versus the +S&P 500 73.1% from Feb. 1, 2009 through Apr. 30, 2011.

Here is a link to the modern day version of the Medical Economics magazine where Ben Graham mentions how to implement his simple strategy.

So what’s Graham’s secret to achieve 15%+ returns over long horizons?

Well, below is an excerpt from the original 1976 article with all important points highlighted:

Click to get the pdf file. 

We decided to keep it simple and backtest the low P/E (<10), shareholder equity > .5 strategy from 1965–2010. We also backtested the results in accordance with the “trading rules” alluded to by Graham: stocks entering the portfolio are held for 2 years, or if they appreciate >50%. For robustness, we tested a variety of P/E and shareholder equity combinations–all results are very similar.

Here are some highlights from the analysis:

Click to get the pdf file. 

We plan to write up an academic article this summer that goes into the details of our final results and analysis. We wanted to share the “hot off the press” results with readers of the Empirical Finance Blog™.


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About the Author:

Wesley Gray, PhD
Wes Gray has published multiple academic papers and four books, including Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016).After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm that delivers affordable active exposures for tax-sensitive investors. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes currently resides in the suburbs of Philadelphia with his wife and three children.
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