In his book “The Intelligent Investor
“The idea here was to acquire as many issues as possible at a cost for each of less than their book value in terms of net-current-assets alone – i.e., giving no value to the plant account and other assets. Our purchases were made typically at two-thirds or less of such stripped-down asset value. In most years we carried a wide diversification here – at least 100 different issues.”
In an experiment which was carried out from a couple of months ago, users at GuruFocus created portfolios based on Graham’s Net Current Asset Value Screener to find bargain buys, which would conform to these norms;
- The stock prices are less than the net current asset value of the companies
- During the past 12 months, the companies generated postive operating cashflow
- The company has no meaningful debt compared to its cash position.
In order to test this screener, GuruFocus created a portfolio on November 24, 2008 with the top Ben Graham bargains, and guess what?
The portfolio returned an amazing return of 40% in just 7 weeks (annualised returns of 1098% over a year). Seven weeks is of course not an apt period to test this hypothesis, but the results and the stocks selected were pretty interesting studies in themselves. Head over to have a closer look.