Dear Investment Team,

Hello Team, I have some work to present to you concerning the prices of investments. Starting with Benjamin Graham's formula for security prices {Earnings*(2*Growth+8.5)*4.4/Interest Rate}. It is a good formula but it overestimates in cases where the earnings are high but the growth is low. Furthermore it does not take into account the equity of a corporation or the growth of its liabilities. I propose a revision to the Graham equation that include Free Cash Flow, Liability Growth, Inflation Rate and Equity: FCF * ((asset growth rate-liability growth rate) + No Growth PE) * Inflation Rate / Interest Rate + Equity. Or in short hand

F*((g-L)+8.5)*I/Y+Q

This equations seems to peg Berkshire Hathaway perfectly, even when Berkshire has negetive earnings and Graham's equation states that Warren Buffett should pay us to own it. In the sheet that I have enclosed there are a few companies of general interest that I have worked out. The first is Berkshire Hathaway. Notice that when earnings were -15000 dollars in 2022 my equation yeilded a purchase price of 411000 dollars and berkshire hit that mark a couple of times in 2023. Right now the equation states the we are 5% off of a Berkshire ultimate low. The next company is similar to Berkshire in that it has a large equity, the company is Intact Financial Corporation. According to the eqation of Graham's, we are below the low by 42%, and according to my equation we are below the Low by 46%. That is excellent agreement when it comes to low growth high equity companies.

The next two companies are important, they are Apple Computers and Nvidia. Now I am pretty sure I am completely vested in Apple so please hear this. According to Graham's equation the true price of Apple is $90 per share, my calculation was $109. Graham and I agree that it is over priced by about 60%. Looking at Nvidia, Graham says $636 and I say $156. Nvidia touched $164 on March 30, 2026. So far my equation is winning, but then I looked at Nike and Adidas and I am not sure.

Graham states Nike at $6.76 and I place Nike at $21.03. I know Nike is on a downward spiral but I was surprised to see such a low valuation using Graham's method especially since it is based on earnings which was more than double free cash flow. Most of Nikes valuation came from is equity per share which was quite high at $14.35. My question is, if Nike dropped to $20 per share would Berkshire buy it? I think so. Now lastly, I looked at Adidas to compare it with Nike, and I was shocked. Graham predicts a fair price at $76.19 which is much closer to it's actual price of $136, than my prediction of $6.35. I owe this deviance to Adidas' small equity. My equation is best suited to companies with an equal portion of real growth and equity like Berkshire and who have exposure to a broad market like the NYSE. Apple is an example of a company with strong free cash flow but is failing to create equity (Equity is 1/5 assets where as at Berkshire it is almost 2/3), so it falls short. I have enclosed a link to the spreadsheet here and I hope you take a look and advise me on any changes you would make. By the way, the equation of interest is Equation 8.

Sincerely,

King Arthur Henry George of Britain

April 23, 2026

For growth (g) in Graham's method I used the asset growth not the earnings growth, as the earnings growth can be inconsistent and missleading

I noticed something about Graham's equation which is also true of mine. Graham states that the price is proportional to (2g+8.5) where 8.5 is the pe of a company with zero growth. If that is true than he was treating 2g as a portion of pe which is possible since g is a unitless cash ratio as is pe. In my method I used (g-L)+N where N was the no growth pe. As Graham did, so may I, because g and L are both unitless ratios of cash I may add them to the zero growth PE and get a minimum acceptable pe. Note that both Graham and I predict the true PE of Apple to be around 10 (and Nvidia should be very high)