Kunpeng Theory: Graham's Exquisitely Refined Growth-Stock Formula Reveals the Grand Secret of Investing

14.3% tier: Graham selected General Motors, representing the average return of outstanding companies—coincidentally matching Buffett’s definition of the minimum long-term growth rate (15%) required for an outstanding company. This suggests that Buffett likely inherited this benchmark from Graham; moreover, it further substantiates that this is an objective assessment of truly exceptional enterprises. In his 1991 letter to shareholders, Buffett wrote: “Charlie and I jointly set a target for earnings growth—15% per year in real terms.” After all these years, when it comes to corporate growth rates, Buffett and Munger ultimately circled back to Graham’s framework. 20% tier: This represents the average return of top-tier companies—and also the growth rate achievable by high-growth companies during their rapid expansion phase. The corresponding P/E ratio is 48.5x. Graham explicitly held that even for the very best companies, the P/E ratio must not exceed 48.5x. Compare the two tables side-by-side, item by item, and you’ll see just how remarkably precise Graham’s formula-derived P/E ratios are. For example: IBM’s projected growth rate in 1963 was 15%; under Graham’s 14.3% tier, its P/E should have been 37.1—while its actual P/E that year stood at 38x. In 1969, IBM’s projected growth rate was 17.9%, close to the 20% tier—and its actual P/E that year was 44.4x. Thus, Graham was unquestionably a mathematical genius—rigorous, data-obsessed, and deeply committed to empirical validation, as evidenced by his repeated revisions of his two seminal works. His formulas were undoubtedly subjected to extensive testing and refinement—not casually concocted. V. What Should We Understand? From Graham’s growth-stock valuation formula and its practical applications above, Kunpeng Theory hopes readers grasp the following: 1. P/E ratios exceeding 48.5x inevitably collapse over time—because, fundamentally, no enterprise can sustain a compound growth rate above 20% over the long term. The Wall Street ‘Nifty Fifty’—a group of stocks trading at P/E ratios around 50x—ultimately collapsed, providing irrefutable evidence. 2. The growth rates listed in this formula embody essential compounding principles, each representing the typical growth rate for a distinct category of company. 3. We recommend keeping Graham’s valuation table permanently at hand. Categorize the growth rates of companies you research into the appropriate tiers—minor adjustments are permissible, but large deviations should be avoided—to arrive at a ‘roughly right’ enterprise valuation. 4. Due to the persistent ‘double-high’ problem (high valuations + high expectations), investing in growth stocks rarely leads to overnight wealth—and far more often results in overnight ruin. Even powerful, professional institutions typically achieve only marginally better returns than broad market indices; underperforming the market is, in fact, the norm. Therefore, you may choose to ignore Kunpeng Theory’s advice—but you’d be wise to heed Graham’s stern warning: individual investors should avoid growth stocks altogether. In the stock market, ignoring others’ recommendations on *which stock to buy* is often correct—but ignoring warnings about *what not to do* is usually unwise. As the old saying goes: ‘Listen to advice, and you’ll eat your fill.’ 5. Valuations derived from Graham’s formula are *not* meant to serve as direct purchase prices based on P/E alone—because a margin of safety (i.e., a discount) must still be applied. Yet neither Graham nor Buffett ever specified precisely *how much* discount is appropriate.

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Another illustrative case is the Cocoa Bean Company. At the time, its stock traded at $34 per share, and the company launched a share-for-cocoa-beans exchange program: each share could be exchanged for cocoa beans worth $36—creating an obvious arbitrage opportunity. Graham thus bought shares, exchanged them for warehouse receipts, sold the receipts for cash, and used the proceeds to buy more shares—repeating this cycle for profit. Why would the controlling shareholder introduce such an evidently profitable scheme? Because they sought to repurchase and cancel shares to increase their own ownership stake. In reality, based on the total cocoa bean inventory held in the company’s warehouses, the intrinsic cocoa-bean value per share far exceeded $36. Thus, the more shares were repurchased and canceled, the greater the cocoa-bean value accruing to each remaining shareholder. 2. Cigar-Butt Stocks Cigar-butt investing falls into two subcategories: The first involves diversifying across a large number of deeply undervalued cigar-butt stocks. The second entails control-oriented investing: acquiring enough shares to secure board representation, then actively joining the board to drive value realization and exit profitably. Within the first category—diversified investment in undervalued cigar-butts—Walter J. Schloss stands out as the quintessential practitioner. This approach aligns perfectly with Schloss’s introverted, calm, patient, numbers-focused, conflict-avoidant, and workaholic personality. Finding undervalued cigar-butts and diversifying across them is conceptually simple: one must diligently review corporate financial statements (then sourced from publications like the *Standard & Poor’s Manual* and the *Moody’s Manual*) and stock price quotations—then perform calculations repeatedly. With immense patience, meticulousness, and time, one identifies a large pool of undervalued cigar-butts and purchases them in diversified lots. The second, control-oriented approach demands a more assertive investor—one who, after gaining board seats, can ‘fight and argue’ effectively to seize initiative. A representative example is Graham’s campaign for a special dividend at a pipeline company. After analysis, Graham discovered that the company held a substantial portfolio of high-quality railroad bonds—whose market value alone exceeded the pipeline company’s entire market capitalization. Moreover, distributing those bonds to shareholders would have no adverse impact on the company’s ongoing operations. Imagine buying the company’s stock, then successfully pressuring management to distribute dividends: you receive substantial cash payouts *and* retain your shares to benefit from future dividend growth—a truly delightful scenario. Graham subsequently executed a series of arduous maneuvers—eventually securing 2 of the company’s 5 board seats—and ultimately pushed through a plan allowing shareholders to exchange old shares for new ones *plus* an additional $70 in cash per share. With the $70 cash plus the market price of the newly issued shares—and an average acquisition cost below $72 per original share—Graham achieved an approximate 54% return. 3. Pre-IPO Stock Investments At the time, a trend emerged around pre-IPO stock investments: subscribing to a batch of newly issued shares, then selling them shortly thereafter on the over-the-counter market for quick profits. For instance, Graham participated in a pre-IPO investment in a tire retreading company: investing $5,000 yielded $15,000 in profit within just a few days—an astonishingly lucrative pace. Yet such supernormal returns—defying common sense—ultimately followed the same path as most scams: the company went bankrupt. Graham and his partners exhausted every effort but recovered only one-third of their principal investment.

5E Advanced Materials Inc Director Hoff Graham Files Form 4 on October 8

Oct 13, 2026

5E Advanced Materials Inc disclosed a Form 4 filing where Director Hoff Graham executed a transaction on October 8th. No specific details regarding the transaction type or volume were provided in the report.

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