Learn to pick underpriced shares with the Graham number

As a matter of importance, stock investors, including the novice and the experienced ones, debate on how to identify the stocks that are yet under-evaluated that match their true worth. For example, before you can entirely rely on the investment results, you as a successful investor acquire the necessary skills and instruments. Moving on, let us discuss another of Ben Graham’s most important contributions, the thought of Graham Number. This article analyses the foundations of Gilbreth’s Number as an indispensable tool for stock screening and how it can be implemented in identifying undervalued stocks. And lastly, it illustrates the significance of demat account opening and stock exchange to have good investment strategies.

Understanding the Graham number

The meaning of Graham Number (also known as the number of Graham)  stands for the most simple measure to assess the intrinsic value of the company’s stock. According to Benjamin Graham, a value investor and the tutor of Warren Buffett, analyzing stocks on whether the prices are greater or lesser than their underlying values was the essence of his investing approach.

The formula to calculate the Graham Number is relatively straightforward:

Graham Number=22.5×(Earnings per Share)×(Book Value per Share)Graham Number=22.5×(Earnings per Share)×(Book Value per Share)

The Graham Number provides a quantitative estimate of a stock’s fair value by considering two key financial metrics:

Earnings per share (EPS)

This ratio measures a company’s earnings-based performance, with the ratio of net income to total issued and outstanding shares.

Book value per share

The book value per share is disclosed as the proportion of equity which belongs to each share of the outstanding stock of a company accounting for the total ratio of the total equity over the total number of outstanding shares of the stock.

Incorporation of Graham Number as an Analytical Tool in Stock Analysis.

The Graham Number might be an astonishing point that will be very useful for those investors who are keen on looking at underpriced stocks. Here’s how you can apply this metric effectively.

Gather financial data

Initially, collect the current earnings per share and book value per share for the correlated company.

Calculate the Graham number

Write down the retrieved values and put them into the Graham Number formula to search for the fair value estimate.

Compare with the market price

Once you have calculated the Graham Number then, see if the price falls under the market price of the stock.

If the current stock market values could be significantly lower than the Graham Number, then the stock may be undervalued and consequently, it offers a good investment opportunity.

While a Graham number higher than the market price could represent the stock undervaluation, a price higher than the Graham number may be treated as an aggressive stock price and an investor should take caution.


Who needs a Demat account and a Stock Trading account?

The Graham number formation itself is not enough you also need to have a demat account and a stock trading account to trade investment strategies. These platforms become the spur that ignites our instinct to trade stocks and the ability to turn to buy, hold, or sell securities whenever we wish. Here’s why opening these accounts is crucial.

Safe and secure holding of securities

A Demat account ( short for dematerialized account)is an electronic account that dematerializes and holds shares and securities in digital form. It excludes real share certificates as a paper, so the method still is the safest and most worthwhile for the investors.

Ease of transaction

Using a Demat account with a continuous mutual deposition stock trading account, investors can simply place orders for purchasing and selling securities and different financial tools. It is no secret that this advanced mechanism will simplify the back-end processes and speed up transactions.

Access to diverse investment options

As a demat type of account is opened on the platform of stock trading, the customers have their investment options in many categories including stocks, mutual funds, exchange-traded funds (ETFs), bonds, etc. Investors gain the privilege of building a balanced portfolio in holdings which gives them the opportunity of reaching their investment goals with diversification.

Among the many significant steps that a person who is planning to invest in stocks should take is to open a dematerialized (demat) account and a stock trading account.

Opening a demat account and stock trading are now hassle-free tasks which can be done with only a few blinks of the eye. Here’s a step-by-step guide:

Select a reputable brokerage firm

Pick a brokerage firm that coincides well with your investment tastes, has low attendance and fee costs, and provides you with excellent customer support.

Complete the account opening form

Submit the overall questionnaire required by the picked brokerage company after you fill it out. Make sure you present real personal credentials, showing identity, address, and bank details.

Submit necessary documents

Please submit your photocopies of identity documents that show your name and address, such as PAN card, Aadhaar card, passport, driver’s license place, and most recent utility bills as mandated for the verification of your identity.

Verification and activation

As soon as the account opening documentation and forms are submitted, the brokerage company will attempt to verify the given facts. Upon the verification pass, a Demat account and stock trading account shall be activated into effect.

Taking advantage of the Graham Number to provide the Investing Purposes.

By having a Demat account and stock trading account in place, as well as using Graham’s Formula as part of an investment strategy that gives discipline to investment decisions, investors could now make better and more informed decisions that increase the success rate when trading on the stock market. Through such scrutiny of stocks concerning their intrinsic value compared with the market price, investors can exploit the partially overseen gems of investment in the sea that have been ignored by the vast market.

It would be appealing to highlight the fact that Graham’s number indeed possesses enormous importance for stock selection but it should always be considered together with the fundamentals and technical indicators for the sake of making truly justified investment decisions. Furthermore, investors need to carry out in-depth research and careful evaluation of each specific company, as that will clarify for them which investment decisions to make.


In the end, I should reiterate that Graham’s Number gives investors a new and systematic way of analyzing a firm’s fundamentals and spot underpriced equities based on those fundamentals. By selecting the fair value exemplification value by the method and predetermining the price with the market price, investors can obtain important data about the possible investment chances.

Furthermore, it is important to have a Demat account and stock trading account opened to work out your investment effectively and to explore the market on the whole. This way of financial services simplifies the problem of buying and selling stock, and securing them hence improving the power and freedom of the investors to have control over their financial future.

Recent Stories