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SledgeKey Backtests

We ran Graham's defensive investor screen honestly. For five years it could not fill a portfolio.

Published August 15, 2026 · By The SledgeKey Team · Window August 19, 2016 to August 17, 2026

In August 2017 this screen ran against every operating company listed on the NYSE and NASDAQ and came back with seven names. The portfolio had room for twenty. The other thirteen slots sat in cash for a year, earning Treasury bill interest, because Benjamin Graham's rules had nothing to say yes to.

Graham laid out those rules for what he called the defensive investor: buy companies of decent size, conservatively financed, reliably profitable, paying a dividend, and cheap against both earnings and assets. We turned that description into five filters and ran them once a year for ten years against point-in-time data, meaning each rebalance saw only what had actually been filed and published by that date. Companies that later delisted stayed in the universe at every date they traded, so the run is not flattered by quietly dropping the failures.

Over the ten years to August 2026 the screen turned $100,000 into $307,592, an annualized 11.90 percent. The S&P 500 turned the same $100,000 into $417,028, an annualized 15.36 percent. Graham's rules trailed by 3.46 points a year, and the ride was rougher in a way the headline gap understates: a 55.2 percent peak-to-trough fall against the index's 33.7 percent.

The exact screen

The full configuration is below as it ran, so anyone who wants to reproduce the result or argue with the setup has everything needed to do either.

The universe line matters more than it looks. A value screen built on price to book will happily buy a closed-end fund, because a fund trades near the value of the securities it holds and therefore posts a low price to book with a clean balance sheet. Five of them turned up in an earlier version of this run, along with a $25 par bond listed under its parent insurer's name and carrying that insurer's $12.8 billion market cap. All of them are now excluded at the universe level, which is why this page shows twenty-nine qualifying companies rather than thirty.

The result against the index

Both drawdown figures are measured the same way, on the daily account value rather than on month-end snapshots. That distinction is worth stating because it changes the number materially. Sampling the S&P 500 once a month over this window puts its worst fall at 28.9 percent, since a monthly observation can step straight over the trough of a fast crash. The daily path finds 33.7 percent, from the peak on February 19, 2020 to the low on March 23. Comparing a daily strategy drawdown against a monthly index drawdown would have made Graham's rules look worse than they were, so both sides here use the daily path.

Volatility, Sharpe and the other dispersion statistics move by a point or so depending on exactly where a ten-year window starts, because a monthly return series samples a crash somewhat arbitrarily. The window above is pinned to August 19, 2016 through August 17, 2026 for that reason, and the figures on this page all come from that single run.

The years it could not find twenty companies

The most interesting thing in this run is not the return. It is how often the screen refused to buy. Graham's criteria are absolute rather than relative, so when the market gets expensive the screen does not lower its standards and pick the best of a bad set. It simply returns fewer names, and the portfolio holds cash instead.

For the first five rebalances the screen never once filled the portfolio, and in August 2017 it came closest to giving up entirely with seven names against thirteen empty slots. The portfolio did not hold a full twenty until August 2021, after the COVID crash and the recovery had reset a lot of valuations. Cash is a drag in a rising market, and a good part of the 3.46 point annual gap comes from sitting in Treasury bills through 2017, 2018 and 2019 while the index climbed.

Whether that is a flaw depends on what the rules are for. An investor who wanted to be fully invested at all times would find this screen useless in an expensive market. An investor who believed Graham's point, that paying too much is the reliable way to lose money, would read the empty slots as the strategy working as designed.

What this backtest does not prove

A page like this earns its credibility in this section, so here is what the numbers above do not establish.

The strategy lost, and it lost while being more painful to hold. Eleven point nine percent a year is a respectable absolute result, and it is still 3.46 points a year behind a low-cost index fund that required no screening, no rebalancing and no conviction. The drawdown was 21 points deeper than the index's and the down-capture ratio was 112, meaning the portfolio fell further than the market in falling months. Nothing here argues that this screen is a better default than owning the index.

These are Graham's criteria interpreted, not transcribed. Graham wrote about earnings stability over ten years, uninterrupted dividends over twenty, and moderate price to earnings measured against average earnings rather than trailing. We used five filters that are available point-in-time across the whole universe. They capture the spirit of the defensive investor tests, and a stricter reading of the original would produce a different and probably smaller set of companies.

One window and one configuration. This is a single ten-year run with one set of thresholds, twenty holdings, equal weighting and annual rebalancing. Change the rebalance frequency, the holding count or the market cap floor and the result moves. A ten-year window that happens to contain one violent crash and a long bull market is not a general claim about how Graham's rules perform.

The largest-cap tiebreak is a real choice. When more than twenty companies qualified, the twenty largest by market cap were selected. That is one rule among several sensible ones, and it tilts the portfolio toward bigger and more liquid names. Ranking by cheapness instead would give a different portfolio and a different answer.

Cash was held at Treasury bill rates. In the years the screen could not fill the portfolio, the unallocated slots accrued interest at the prevailing three-month bill rate. That is a reasonable assumption and it is still an assumption, and it matters more here than in most backtests because the portfolio was partly in cash for half the run.

Concepts and metrics used in this backtest: Survivorship Bias · Point-in-Time Data · Max Drawdown · Price to Earnings · Price to Book · Current Ratio · Debt to Equity · Dividend Yield.