In his book “The Intelligent Investor”, Ben Graham, the father of value investing, found that one strategy that worked well was to buy companies that are sold at below its net current asset value. He called those bargains.
He wrote:
“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.”
Modern value investors rarely have had the opportunities to invest in these “bargains”, until very recently. Inspired by our users, GuruFocus developed a “Graham Net Current Asset Value Screener”, to find these companies:
- The stock prices are less than the net current asset value of the companies – Benjamin Graham
- 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 Nov. 24, 2008 with the top Ben Graham bargains. Since then the market recovered a bit, S&P500 grew from 851 to its Friday close of 890, or 4.6%. Small caps, which most of these bargains are, did better. The Russell Micro Cap index grew 11%. How did the Ben Graham bargains do?
This is the list of Ben Graham bargain portfolio GuruFocus created on Nov. 24.
Symbol | Market Cap ($M)* | Date Added | When Added | Current | Change (%) |
|---|---|---|---|---|---|
138.46 | 11/24/2008 | 1.43 | 1.65 | 15.38% | |
112.37 | 11/24/2008 | 1.29 | 3.67 | 184.50% | |
15.98 | 11/24/2008 | 0.87 | 1.41 | 62.07% | |
10.64 | 11/24/2008 | 1.2 | 1.26 | 5% | |
22.88 | 11/24/2008 | 1 | 0.7399 | -26.01% | |
30.2 | 11/24/2008 | 0.73 | 1.3 | 78.08% | |
59.43 | 11/24/2008 | 1.32 | 1.36 | 3.03% | |
16.54 | 11/24/2008 | 0.63 | 1.15 | 82.54% | |
27.21 | 11/24/2008 | 1.09 | 1.45 | 33.03% | |
110.89 | 11/24/2008 | 3.87 | 4.93 | 27.39% | |
38 | 11/24/2008 | 2.15 | 3.06 | 42.33% | |
6.19 | 11/24/2008 | 1.4 | 1.548 | 10.57% | |
9.74 | 11/24/2008 | 0.51 | 0.5 | -1.96% | |
Average Gain | 39.69% |
This portfolio generated an astonishing gain of about 40% in Just 7 weeks. Guess what kind return that is if annualized? 1098% per year !!!
In the meantime, a few other users also generated their portfolios using Benjamin Graham Net Current Asset Value Screener. The summary of the performances is below:
User | Portfolio Date | Days Passed | Gain | Annualized Gain | S&P500 | Russell Microcap | Link |
|---|---|---|---|---|---|---|---|
12/18/2008 | 22 | 14% | 726% | 0.6% | 1.1% | ||
gurufocus | 12/25/2008 | 17 | 21% | 5890% | 2.6% | 3.2% | |
12/27/2008 | 14 | 17.90% | 7219% | 2.0% | 2.3% | ||
1/1/2009 | 9 | 11.90% | 9457% | -1.5% | -2.4% |
All these portfolios performed much better than the market average. The investment strategy Ben Graham found more than half a century ago finds its opportunities again today!
As market recovers, many of the stocks in this list grow out of the bargain area. The list itself also has shrunk. But with the recent market volatility, there might be opportunities in the future, only if you can keep your faith in value while most others don’t.
Please remember, as written by Ben Graham, you need to buy a basket of these stocks to reduce risk, as some of the company may go under as situations worsen. Also the turnovers with these portfolios may be higher.
If you like to see the current list of Ben Graham bargains, go to: Benjamin Graham Net Current Asset Value Screener. This is for Premium Members only. If you are not a Premium Member, you are invited for a 7-day Free Trial.
If you are not aware, GuruFocus developed a series value tools for you to discover value ideas at this uncertain time. You can see them here:
- Ben Graham Net Currrent Asset Value Bargains: Companies sold at less than their book value in terms of net-cirrent-assets alone.
- Undervalued Predictable Companies: Predictable companies that are undervalued as measured by discounted cashflow model.
- Buffett-Munger Screener: Companies that are "buy good companies at fair prices" as defined by Warren Buffett and Charlie Munger.
- Predictable Companies: Companies that have the most consistent growth of revenue and earnings.
Also please read GuruFocus Research:
- Benjamin Graham's Net Current Asset Value Bargain Screener
- Where Are We with Market Valuations? What Can We Expect for the Next Decade?
- What worked in the market from 1998-2008? Intrinsic Value, Discounted Cash Flow and Margin of Safety
- What worked in the market from 1998-2008? Part II. Under-Valued Predictable Companies and Buffett-Munger Screener
- GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank
You are invited for a 7-day Free Trial.
