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The Great NCAV Experiment Portfolio: Inception

Aug. 14, 2016 8:58 AM ETMSN, RBCN, RELL, IOR, DSWL, WILC, AEY20 Comments
Stewart Nielson profile picture
Stewart Nielson


  • Studies have shown NCAV investing to produce high returns on average.
  • It is a largely mechanical strategy and can help remove the emotion from investing.
  • NCAV investing is one area where the small investor actually has an advantage over larger investors.

I have long been fascinated by Benjamin Graham's mechanical investment in NCAV (Net Current Asset Value) stocks. Especially, with many studies showing that high returns are very possible.

Having read Graham's "Security Analysis" in the past, and recently having read "The Net Current Asset Value Approach to Stock Investing" by Wendl, I'm feeling pumped to personally try some net-net investing. I thought it might be fun to publicly create a portfolio, lay out some ground rules, and report back monthly.

Why monthly? I want readers to get a feel for the volatility that accompanies this strategy. It will likely be a gut-wrenching ride.

Let me get this out of the way upfront: I am not suggesting this strategy (or portfolio) for others. While studies suggest very pleasant returns (20+%) averaged over long periods, there is the aforementioned high volatility coupled with low liquidity. Also, some years this strategy will underperform the market, perhaps even sharply underperform. The trick will be to stick with it during such times.

What is an NCAV stock?

An NCAV stock is a stock which is trading below its Net Current Asset Value per share.

Net Current Asset Value per share is defined as (Total Current Assets - Total Liabilities - Preferred Stock) divided by Total Shares Outstanding.

Basically, the NCAV per share should tell us the company's liquid assets per share in excess of all other obligations. Believe it or not, some stocks trade below this amount, meaning they have a higher NCAV then stock price.

Why does this happen? The short answer: fear, and often with good reason. These are companies that investors perceive as circling the toilet, many have limped along for several years. Earnings are usually terrible, products outdated, revenue slipping, large customers leaving, etc.

These are not the best companies in

This article was written by

Stewart Nielson profile picture
An avid value investing junkie for many years, I have exhausted the people in my life willing to discuss my latest greatest investment ideas. So I find myself turning to the bigger audience of Seeking Alpha, learning a lot, and hopefully helping a few investors along the way.

Analyst’s Disclosure: I am/we are long MSN, RBCN, RELL, IOT, DSWL, WILC, AEY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

Little, Einstein profile picture
And then this NCAV is working?
Stewart Nielson profile picture
NCAV investing has worked very well for me privately. I did however stop my public series of articles on it due to low interest.
Stewart Nielson profile picture
Why thank you! I respect you for putting your thoughts out there on TPL. It has a very big fan base here on seeking alpha. I published an article on it last year using a DCF but failed to be conservative enough in regards to the uncertainty of land sale proceeds in hindsight. I ended up a bit high. I'll probably take another crack myself after it's been a year or so.

Unfortunately NCAVs don't get much readership, at least for me, so I'm now going to only revisit this portfolio probably for an annual review. My private NCAV investing has done pretty well for me though, and I've only been diving in deeper. My personal portfolio is mostly NCAVs with a few Buffettology inspired picks sprinkled in. Those seem to be the styles that I find myself sticking to. Hopefully someday I'll be managing so much that NCAVs will no longer be viable... a guy can dream.

I'm very curious about your screen, Hmm...I might try that just to see if there's anything interesting in there right now. Could be fertile grounds. I look forward to hearing more once you are ready to share.

Anyways cheers, thanks for reading, and again for the article!
Steven Miller profile picture
I've worked with this screen for a long while now, and it is obvious that it works best as an initial screen. It allows value traps through, and due diligence must be done. I've just recently been working to refine it and eliminate a couple dozen stocks from my watch list.

Let me know if you find anything, good or bad. Better yet, write up an article on it. I'll be sure to see it. :-)
Steven Miller profile picture
Great to see someone else writing about NCAV. Thanks.

As you have seen in my recent article, I am a fan of NCAV as well. However, I have gotten away from net-nets for various reasons. It can be a viable approach for investors, it just isn't my preferred approach. I instead use positive NCAV + dividend payments for my initial screen and work from there.

I made an initial portfolio over on Motif, but wasn't happy with the results, so I am working it some more. Hopefully I'll have something to show soon.
GII profile picture
Hey, thank you for the article.

I think you will soon note that this space is full of value traps, dead money, old, lazy, fossilized or self-dealing management, de-listings, and other long-term reasons for price punishment.

But at the same time, based on my past experience, you can still make profits from this niche space if you strip your emotions, keep to your strategy, and deal with a bigger basket.
You should look at SPRT (Support.com). Its NCAV/ P is 84% but it recently lost 5 directors that were replaced by hedge fund partners from a fund owning nearly 20% of the company. I believe a sale will take place within 12 months that will produce a minimum 50% gain.
Michu profile picture
You could probably also add APWC to your portfolio, which is located in Taiwan. Often this stock is overlooked, probably because the trading volume is low or it is a bit more leveraged.
Stewart Nielson profile picture
I'll take a look. Thanks for the tip!
MWinMD profile picture
Always glad to see more NCAV coverage here on SA. MSN looks particularly interesting at these prices. Their burn rate the past few years (per Marketwatch) seems virtually nil, they just aren't raking in tons of profits. Why don't these things get bought out and liquidated by hedge funds? Any sense of that, either Stewart or Ruerd?

Thanks for the article.
Ruerd Heeg profile picture
I think Lloyd Miller's exit is related to the transfer of control to the Chinese shareholders, after the bankruptcy of Grande was resolved. He clearly does not trust the guy that took over control. The new owner has not dissolved the strategic alternatives committee.

We will see. Looking at the statistical properties I find it a great bet but I admit there seems to be little chance on any favorable scenario for the stock.
Stewart Nielson profile picture
Appreciate your comment MWinMD.

I really can't speak for why hedge funds don't get involved more. Perhaps it's the low liquidity that's their biggest barrier? Others would know better than I, but that would be a factor I imagine.

As to MSN they have recently lost some large customers, so I would not be surprised to see results deteriorate.

In fact, they just released a new 10-Q yesterday, and yoy quarterly net revenue is down to 6,634 (thousands) versus 19,512 (thousands) a year ago. Net income turned negative.

To top it off they've had wranglings with the IRS this year as well.

I'm going to ride it out, but it may be a rough ride.

"the Company's products were discontinued at retail by one of the Company's former key customers beginning January 1, 2016. In addition, as described above and as previously disclosed, Funai terminated its license agreement with the Company effective as of December 31, 2016. Both of these events will have a material impact on the Company's business, financial condition, results of operations and cash position. The Company is analyzing the impacts to its business of these events and is identifying strategic courses of action for consideration."
MWinMD profile picture
Thanks for the color, Stewart. Clearly there had to be something being priced in behind the near 50% slide in 2016.

As for the hedge funds I guess a micro cap is small potatoes for them, but I wonder if with the large caps having been run up so far and the market "topping" according to many, they might start looking at some of these names. Though I guess it's up to what the 62% insider ownership thinks in the end.
Afanti Arbitrage profile picture
Thanks for sharing. I also keep a basket of net-nets as part of a broader deep value portfolio.
Stewart Nielson profile picture
" Wendl showed non-dividend paying net-nets have higher returns, but even more volatility. Someone looking for the highest returns should only invest in non-dividend paying net-nets."

*face palm* You are correct. My memory failed me. I think I'll remove dividends as a consideration going forward.

Thanks for the advice. This is my first little toe-dip into the waters of net-net investing, and I certainly need all the help I can get.
Ruerd Heeg profile picture
Thanks for the article. Long MSN and IOT. While investing in net-nets works it is better to invest in foreign net-nets as well: net-nets listed abroad. The US stock market is so expensive nowadays that the US listed net-nets are either relatively expensive or have lower quality than foreign net-nets. What you have done, not investing everything, makes sense when valuations are peeking.

Fraud can also occur with US companies. Instead of avoiding all Chinese stocks it is better to learn spotting red flags based on the financial reports and other press releases. In general it makes sense to do research into the stocks you are investing in.

Wendl showed non-dividend paying net-nets have higher returns, but even more volatility. Someone looking for the highest returns should only invest in non-dividend paying net-nets.

Investing in net-nets means doing systematic research on each net-net to make the best stock bets. That is what I provide on global net-nets in my monthly premium research net-net article on Seeking Alpha.

I hope you will have great returns!
Did Wendl do his own study about the non-dividend net-nets, or did he cite some other study?
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