– approximately 2 billion in current dollars
2. Strong Financial Condition
– current assets should be at least twice current liabilities
– long term debt should be less than working capital
3. Earnings Stability
– 10 years of positive earnings
– 20 consecutive years of dividend payments
5. Earnings Growth
– At least a 33% gain of earnings over the past 10 years using three-year averages.
6. Moderate Price/Earnings Ratio
– not more than 15 times average earnings of past 3 years
7. Moderate Ratio of Price to Assets
– price to book value should be less than 1.5 or
– price/earnings ratio times 1.5 should not exceed 22.5
Even the defensive investor should be willing to sell stocks that have appreciated significantly and can be replaced with more attractively valued securities.
The defensive investor should understand the difference between prediction (qualitative approach) and protection (quantitative or statistical approach). The risky approach is to try and predict or anticipate the future. The protection approach measures the proportion or ratios between price and relevant statistics (i.e. earnings, dividends, assets, debt, etc.).
This article has been republished with permission from Arbor Investment Planner.