The Benjamin Graham Screener: Does It Still Work?

Benjamin Graham — the father of value investing and Warren Buffett's mentor — developed some of the earliest systematic stock screening criteria. We've tested his framework against our modern quality metrics in the 1930s and 1940s. His most famous screens, the Defensive Investor criteria and the Net-Net screen, were designed to find stocks trading below their liquidation value — companies so cheap that even if the business shut down, shareholders would make money.

These screens produced exceptional returns for decades. But the investing landscape has changed dramatically since Graham's era. The question modern investors ask is whether his mechanical screening approach still works in markets dominated by institutional investors, algorithmic trading, and information that moves at the speed of light.

The Net-Net Screen

Graham's most aggressive screen looks for stocks trading below their net current asset value (NCAV): current assets minus total liabilities. If a company has $100 million in current assets and $60 million in total liabilities, its NCAV is $40 million. If the stock's market cap is below $40 million, you're theoretically buying the business for less than its liquidation value — getting the entire operating business for free.

Graham recommended buying a diversified basket of these net-net stocks and holding for two years or until a 50% gain, whichever came first. In his era, this approach produced annual returns well above the market. The logic is sound: buying below liquidation value provides an extreme margin of safety.

The Defensive Investor Screen

Graham's less aggressive screen targets financially sound companies at reasonable prices. The criteria: adequate size (revenue above $500 million in modern terms), strong financial condition (current ratio above 2.0, debt less than net current assets), earnings stability (positive earnings in each of the past ten years), dividend record (uninterrupted dividends for at least twenty years), earnings growth (minimum 33% increase in per-share earnings over the past ten years), and moderate P/E (below 15) and price-to-book (below 1.5, or P/E × P/B below 22.5).

Do These Screens Still Work?

Net-net stocks have become extremely rare in developed markets. In Graham's era, information asymmetry meant many companies traded below liquidation value simply because investors didn't know about them. Today, with universal access to financial data and thousands of hedge funds running screens, true net-nets are nearly extinct among US large and mid-cap stocks. You'll occasionally find them among micro-caps, OTC stocks, and in international markets — but the quality tends to be very low.

The Defensive Investor screen fares better but still shows its age. The requirement for twenty years of uninterrupted dividends eliminates most technology companies, which are among the highest-quality businesses in the modern market. The P/E and P/B thresholds systematically exclude high-ROIC compounders that deserve premium valuations.

The deepest insight from Graham isn't his specific criteria — it's the discipline of using systematic screens to impose rigor on the investment process. Modern quality-focused screening updates Graham's philosophy with metrics he didn't have access to: ROIC, moat analysis, free cash flow conversion, and composite quality scores that evaluate business durability alongside statistical cheapness.

Where to Run a Graham Screen

Gurufocus offers dedicated Graham Number and NCAV screeners. Finviz can approximate the Defensive Investor criteria using P/E, P/B, current ratio, and dividend filters. For a modernized version of Graham's approach — finding high-quality businesses at attractive prices with a margin of safety — platforms that combine quality scoring with fair value estimates capture Graham's intent even if the specific metrics have evolved. The honest limitation: Graham's criteria were designed for a different era — before asset-light businesses, SaaS models, and intangible-heavy balance sheets. Applying them rigidly today would screen out many of the market's best businesses.