# NCAV Value stocks -  Ben Graham



## systematic (20 March 2015)

Every now and then, and purely for fun (yes - I find this kind of thing, fun) one of the things I'll do is look to see if there are any NCA Value stocks about.  I have a look, then forget about it (I know - strange idea of fun). 

When I first hopped on the forum a couple years back I happened to be looking at a few Graham type "screens" - again, for fun.  I do still check in from time to time to see if there are any NCA Value stocks, but don't bother looking at Graham's "enterprising" or "defensive" methods.

I was just having a look yesterday and thought; it wouldn't hurt to have a thread for it.  At least that way, whenever I do have a look I can put it in here and if I ever want to check in a year or three later to see how they went, I can.  Besides, I know there are a few scattered here and there that like such things.

I'm not going to go into an explanation here...those interested will most likely already know...but if you're interested and don't know what I'm talking about...here is a quick summary page for you.

I check a couple other Graham type screens (every now and then) and may or may not put them in here.  

I don't invest directly using the "Ben Graham" formulas.  But given that he was around so long ago...and his stuff worked and continued to work (and continues to work) is impressive to me.  Respect.  He didn't have the computing power we have today, either.

Anyway.

As this is my thread; here are the "rules" (or at least, "requests") for comments...please.

Please keep comments relevant to what is posted.  You can talk about the NCAV approach (good points, bad points, definition of, improvements etc).  But please keep the comments away from, "hey, how about you test this instead?"  This is a thread for NCAV stocks on ASX or other exchanges if you like.  Comments to the thread should align with that approach.  It doesn't matter if you invest this way, you just have to (like me) be interested.  Start another thread if you want to bag out fundamental analysis (which I don't do), value investing, or try and tell me that you're a true Ben Graham fan and he was not a "quant" (he was).

I would especially like to see comments along the lines of analysis of the stocks mentioned, according to _your_ insights or criteria.  Why?  For fun!  That's the only motive.

My own approach is boring - the 3 letter names of stocks are just like numbers the computer has crunched out to me.  So, even though I don't do it myself, I sometimes enjoy seeing a good / deeper analysis of a company.

You're also welcome to post any NCAV stocks that you find (ASX or elsewhere).  I don't look at this all the time at all, so I'm bound to not get many of them.  Try and make sure it _is_ an NCAV stock though, to the best of your ability.

When I mention a stock, I'm going to make the ticker a link to the relevant ASF thread for that stock.  Just 'cos I think that's a cool thing to do.  Hopefully I remember.

I don't mind being alone in this thread, but hope not.



Sorry for the section on ground rules...I don't mean to post like that...I've just seen other threads taking turns for the worse due to people not respecting the original post.  I always try and take note of the original post when commenting in a thread.


----------



## systematic (20 March 2015)

A quick descriptor so that it's at the top of the thread...

Lots to find out about if you want to get into "Ben Graham" - this is just a quick definition of this particular method.

*What does"NCAV" stand for? *  Net Current Asset Value.

*What does that mean?* The value of the current assets of the business, net of liabilities.

*How do you calculate it?* Couldn't be easier.  


Get a balance sheet.  The one with Assets, Liabilities and Equity (Assets minus Liabilities = Owners Equity)
Find the Total Current Assets.  These are things like cash, inventory and receivables.  Stuff that is nearly as good as cash.
Subtract the Total Liabilities.  Not just the current liabilities - the whole lot.


You now have the net current asset value.


Take the market cap and divide it by the net current asset value you just calculated and you have a ratio of the market price of the company to the net current asset value of the company.


It should be fairly obvious that a market cap that is less than the net current asset value (the ratio is less than one) the market is valuing the company at less than its current assets (net of liabilities).

Ben Graham recommended a discount of a third...i.e. paying no more than two-thirds (market cap) to net current asset value.  In a way, "buying a dollar for 67 cents" - so to speak.  So, it's a "value" investing approach.

Just wanted a simple, step by step "how to" definition near the top of the thread.


----------



## systematic (20 March 2015)

Three I ran into yesterday...

AOH  
Altona Mining

ONC
Oncard

SBB
Sunbridge Group


----------



## DJG (20 March 2015)

FWD - Fleetwood Corporation

CA - $155m
Total Liabilities - $131m

0.84 ratio


----------



## galumay (20 March 2015)

Honestly, all the companies posted so far demonstate the problem with relying on the NCAV metric alone, they are all horrible companies and I doubt Ben Graham would have bought any of them.


----------



## systematic (21 March 2015)

galumay said:


> Honestly, all the companies posted so far demonstate the problem with relying on the NCAV metric alone, they are all horrible companies and I doubt Ben Graham would have bought any of them.




Appreciate your thoughts. My question back to you would be, "is buying horrible companies a bad thing?" 

Regardless.  I'm just going by the formula as it is.  Whether Ben would have bought them or not, well I don't know.

From Intelligent Investor:


> A third and final example of the golden opportunities not
> recently available: A good part of our own operations on Wall
> Street had been concentrated on the purchase of bargain issues easily
> identified as such by the fact that they were selling at less than
> ...


----------



## systematic (21 March 2015)

DJG said:


> FWD - Fleetwood Corporation
> 
> CA - $155m
> Total Liabilities - $131m
> ...




Thanks DJG - but I think you forgot to divide the market cap with your figure.  Its not just total liabilities into current assets.  FWD does not qualify (it has a ratio of over 3)


----------



## galumay (21 March 2015)

systematic said:


> Appreciate your thoughts. My question back to you would be, "is buying horrible companies a bad thing?"
> 
> Regardless.  I'm just going by the formula as it is.  Whether Ben would have bought them or not, well I don't know.
> 
> From Intelligent Investor:




Fair question, and clearly if you can find 'horrible' companies that are actually good companies in disguise then you have real opportunity and isnt that what most of we fundamental, value investors are looking for?

The problem for me with your examples that reinforces that one metric is not nearly enough is that in all liklihood SBB is some sort of fraudulent rort that will see shareholders lose their shirts. 

AOH is a mining company and without looking at its fundamentals at all that would ring alarm bells in the current climate, generally I think highly cyclical, commodity reliant companies like miners are almost impossible to value, hence so many value investors avoid them altogether.

I must confess I didnt look at ONC in the context of my reply.

I dont disagree with the concept of screening with NCAV to see if any gems turn up, but I think a lot more research is then required - as with any primary screen.

EDIT - Question for you! Do you think the universe of companies in the ASX is too small for this filter to be of much use? I looked one of the most undervalued shares in my portfolio based on all of my analysis, UOS and it comes back with a NCAV of about 100%. In fact the only company I own that meets that criteria is one on the NSX.


----------



## galumay (21 March 2015)

Just found another of my holdings that is well below the threshold, SND.


----------



## galumay (21 March 2015)

Whoops! Ignore what I posted about SND, back to fronted the calculation!


----------



## omac (21 March 2015)

XRF - XRF Scientific
just scraps in 0.93


----------



## galumay (21 March 2015)

omac said:


> XRF - XRF Scientific
> just scraps in 0.93




I have XRF priced at 20.5c and an NCAVPS of 0.08c so its over 250% rather than below 67%

(I suspect it saves confusion to calculate the per share value, so (Current Assets - Total Liabilities)/shares on issue.

This gives you ab NCAVPS and you are looking for companies where the current price is less than 67% of the NCAVPS.


----------



## omac (21 March 2015)

whoops, I used total assets initially instead of total current assets.


----------



## systematic (21 March 2015)

galumay said:


> I have XRF priced at 20.5c and an NCAVPS of 0.08c so its over 250% rather than below 67%
> 
> (I suspect it saves confusion to calculate the per share value, so (Current Assets - Total Liabilities)/shares on issue.
> 
> This gives you ab NCAVPS and you are looking for companies where the current price is less than 67% of the NCAVPS.




galumay is correct...this is 2.5 times net current asset value, so doesn't qualify.

That's a great point re: getting it to a per share value first and then comparing it to price, if that helps people understand it a bit better.

I just do: MarketCap/(CurrentAssets - Total Liabilities) which will be the same result.  So whichever way works for people.

I'm glad you bought it up because it's frustrating trying to work out what's going on when you're new to something, if things are not step by step and clear.  

Keep bringing the examples guys, because if you've got the numbers right - great, and if not...you'll learn how to do it.


----------



## systematic (21 March 2015)

galumay said:


> Fair question, and clearly if you can find 'horrible' companies that are actually good companies in disguise then you have real opportunity and isnt that what most of we fundamental, value investors are looking for?




...Yes that's true; good companies in disguise is certainly what many value investors (particularly of Buffett style) are looking for.  That's the wonderful company at a fair price (or bargain price if you can get it).  In this instance (NCAV stocks) though, I just want to point out that it's not quite about that.  It's not even really about the "fair company at a bargain price".  It's more about, "this car is worth more than I'm paying for it even if I just drive it straight around to the scrap yard".  That's the essence of these companies.  They can actually _be_ truly bad companies.

Now, what happens in fact, is usually (Ben Graham refers to this) something happens to the company to give it a little more life and up goes the market price.  The stats bear this out - not as many of these companies go bust as they "should" statistically, and Ben Grahams suggestion of a change in fortune does happen (often enough).

This is a great point to bring up.  It's like; if you pick the horse or sports team and look at the past performances, and go looking for the "best" horse / team...with not a lot of experience, you'll probably be able to pick it.  Then, when you get to the bookies, you'll find your pick is the favourite.  _Value_ is a different question again; and is the hardest question out there, in some ways.  Paying $100k for a Mazda 6 is probably over the odds / over valued.  In this case, the Mazda is the best car by far....but the bomb you picked up for $500, spent $500 on...and then sold for $1,500 was an absolute bargain.  There the extremes; of course it gets much more fine grained than that, and that's why it's so hard.  Eg. You think the favourite is a 50/50 chance but is going out at odds-on...are you happy that the second favourite is 4/1?  Does it have an 18,20 or 22% chance?  It gets granular like that.

The idea here (specifically with NCAV stocks) is you're aiming for a no question bargain.  e.g. You're picking the worst team on the AFL to win...because today they're playing a charity game against the local RSL.


----------



## systematic (21 March 2015)

galumay said:


> The problem for me with your examples that reinforces that one metric is not nearly enough is that in all liklihood SBB is some sort of fraudulent rort that will see shareholders lose their shirts.





.....Exactly the sort of comment I'm looking to see.  Hoping to see (interested) people analyse these as you have done.  I was going to mention the China thing re: SBB (I know of someone who won't invest in these stocks if they have any China connection).  So keep those comments coming.



galumay said:


> I dont disagree with the concept of screening with NCAV to see if any gems turn up, but I think a lot more research is then required - as with any primary screen.




...Perfect!


----------



## galumay (21 March 2015)

A bit of digging on ONC turned up the China connection again, coincidence much!?

I would ask again, do you think the universe of ASX companies is too small to turn up real NCAV opportunities?


----------



## systematic (21 March 2015)

galumay said:


> EDIT - Question for you! Do you think the universe of companies in the ASX is too small for this filter to be of much use?




Probably, yes.  But over time and as I look for / find them I'll post them.  As mentioned originally, I do it anyway and then forget about it - so why not post it?

Yeah; the only people I know who actually put money into these types of stocks, do it internationally.  Can do that here too - doesn't have to just be ASX.


----------



## KnowThePast (22 March 2015)

Here are a few current ones:
UGL, CTN, WDS, SHR, ONC, CND, CYG, DLC, SBB, AMO, PPX, QTG, TAG. 

Running a backtest for the last 10 years - this strategy still outperforms, but:
1. Only by a little
2. Very few trades, too few to get confident with.

If you did follow it over the last year, you would have done as such:




It wasn't a great year for value strategies.


----------



## systematic (22 March 2015)

I think you've done an amazing job with your backtesting and I know you are a value investor at heart.




KnowThePast said:


> Here are a few current ones:
> UGL, CTN, WDS, SHR, ONC, CND, CYG, DLC, SBB, AMO, PPX, QTG, TAG.





Just running through them...and I could be wrong too (it's late!) but just a couple of queries...

UGL - no positive NCA
CTN - investment company, so doesn't come up on my radar, can let that slide
WDS - postive NCA but priced greater than NCAV
SHR - ~0.97 (just value, but not Graham value)
CND - ~0.92 (just value, but not Graham value)
CYG - ~0.75 
DLC - Yep
AMO - Yep
PPX  - Yep
QTG - Yep
TAG - ~0.79 

I realise though you might not have been looking at the two-thirds thing, which then leaves only a couple queries.

Also - I posted only 3 stocks as I didnt see the point posting the others I had that had no volume at all / hardly ever trade.

What are others thoughts on that?    I ask, because this list reminded me of that, with several being untraded.  What does that do for that backtest?




KnowThePast said:


> 2. Very few trades, too few to get confident with.




...I do wonder if this is best done globally.  I looked at this again with international markets, thinking the bigger opportunity set would allow me to get greedy and ask for heaps of quality factors, and was left with only one or two stocks!
For the pure NCAV approach, and finding stocks liquid enough to trade...I think going global is nearly a given.




KnowThePast said:


> It wasn't a great year for value strategies.




...Definitely agree with that!  It was only my momentum trades that did any good - definitely a momentum market in my opinion last year.


----------



## KnowThePast (22 March 2015)

systematic said:


> I think you've done an amazing job with your backtesting and I know you are a value investor at heart.
> 
> Thanks systematic






systematic said:


> Just running through them...and I could be wrong too (it's late!) but just a couple of queries...




Should have read your criteria with more attention 

I only ran the scan for net-nets: (Current Assets - Total Liabilities) > Market Cap

It was also based on financials as reported in the last full year report, so that results in some data issues. 

Narrowing the criteria further will result in ever fewer trades and make it even more meaningless, so I won't.



systematic said:


> Also - I posted only 3 stocks as I didnt see the point posting the others I had that had no volume at all / hardly ever trade.
> 
> What are others thoughts on that?    I ask, because this list reminded me of that, with several being untraded.  What does that do for that backtest?




Excellent question. If you are a large fund, you exclude them, absolutely.

But, if $5000 is a meaningful investment for you, and you can wait months/years before you sell, perhaps you keep them in and see if you find an edge there.

The tricky bit is, let's say you run a net-net strategy with illiquids included and you get a good result. Is it due to net-nets, or due to illiquids? How do you know which one is more important and therefore, which one should be your base filter when you look for stocks?

Are you looking for a fully automated strategy, or one where human decision will be involved to make a final buy/sell decision. This makes a big difference.



systematic said:


> ...I do wonder if this is best done globally.  I looked at this again with international markets, thinking the bigger opportunity set would allow me to get greedy and ask for heaps of quality factors, and was left with only one or two stocks!
> For the pure NCAV approach, and finding stocks liquid enough to trade...I think going global is nearly a given.




I think there are numerous studies that should this strategy outperforms by 1-5% in most markets, including developed and developing ones.


----------



## luutzu (22 March 2015)

systematic said:


> A quick descriptor so that it's at the top of the thread...
> 
> Lots to find out about if you want to get into "Ben Graham" - this is just a quick definition of this particular method.
> 
> ...





Your formula could be wrong.

In "the interpretation of financial statements", Graham and Meredith state, p. 31.:

"The Working Capital is found by subtracting the current liabilities from the current assets."

also, "... the excess of current assets over current liabilities - known as the Net Current Assets or the Working Capital."


They go on to say that this ratio is important in analysing industrials' financial strength... 

But I do remember reading somewhere that Graham did suggest that when a company sells below its NWC (NCAV), chances are it could be a bargain. Though it then make sense to think that you'd also take out the longterm debt too, but his definition doesn't seem to include that.


One of Graham's other advice, one that perhaps most of us forget because we tend to think of him as a numbers guy, a quantitative guy... but he did advised that quantitative analysis must always be complemented with qualitative analysis (in security analysis).

So while he did suggest stock below NWC as potential bargains... everything else must be equal. Say, a company could have lots of cash in account and so its NWC looks great. But if we stop there and didn't glance at how it got to that cash, we could be in trouble.

Big difference if the cash were its own savings from operations than from a new round of equity raising to make ends meet.


----------



## systematic (22 March 2015)

luutzu said:


> Your formula could be wrong.
> 
> In "the interpretation of financial statements", Graham and Meredith state, p. 31.:
> 
> "The Working Capital is found by subtracting the current liabilities from the current assets.".




It's not wrong.  Graham did use the term working capital in that way.  But when talking of NCAV he said, "net of all liabilities" - meaning an even stricter "working capital".  Zweig also clarifies this in a note in the revised edition.  It's also well known and accepted to be this calc...and has been tested as such in academia.





luutzu said:


> One of Graham's other advice, one that perhaps most of us forget because we tend to think of him as a numbers guy, a quantitative guy... but he did advised that quantitative analysis must always be complemented with qualitative analysis (in security analysis).




You are spot on...he absolutely did say that.  In fact, immediately after describing NCAV bargain issues, he stated that a company that is a "bargain" by this measure is, "interesting" but not necessarily value.  
It does "work" in an auto fashion...but Graham himself certainly did emphasise the qualitative; you are spot on there.

I guess hence the thread (well, no really it was just a place to post them and whoever wanted to comment was welcome).  i.e. I'm interested in hearing peoples qualitative analysis.

For example, the China factor with SBB...


----------



## systematic (22 March 2015)

Was anyone looking for these type of stocks around 2008 / 2009?  Were there many about?


----------



## skyQuake (22 March 2015)

Correct me if im wrong but KAR and MGX look like they fit the bill using recent data?

KAR (532 mcap, 694 curr asset, 148 total liab) 0.97
MGX(234 mcap, 409 curr asset ,139 total liab) 0.87


----------



## systematic (22 March 2015)

skyQuake said:


> Correct me if im wrong but KAR and MGX look like they fit the bill using recent data?
> 
> KAR (532 mcap, 694 curr asset, 148 total liab) 0.97
> MGX(234 mcap, 409 curr asset ,139 total liab) 0.87




Yep; they'd need to come down in price a bit more though to have the 1/3rd margin of safety...but definitely positive NCAV.


----------



## skyQuake (22 March 2015)

This is looking back using historic ASX300 constituents. (nothing in 2007 or 2006 interestingly enough)

Havent check against annual report, but the curr assets, total liab are from "latest filing" according to data source. eg 22nd Mar 2014 KAR uses 9th Dec 14 filing data


----------



## systematic (1 April 2015)

skyQuake said:


> This is looking back using historic ASX300 constituents. (nothing in 2007 or 2006 interestingly enough)
> 
> Havent check against annual report, but the curr assets, total liab are from "latest filing" according to data source. eg 22nd Mar 2014 KAR uses 9th Dec 14 filing data





...Thanks skyQuake!  Do you invest in them?


----------



## systematic (1 April 2015)

GDY  Geodynamics Limited.  
Qualifies as below NCAV with the 33% discount rule.


----------



## luutzu (1 April 2015)

systematic said:


> It's not wrong.  Graham did use the term working capital in that way.  But when talking of NCAV he said, "net of all liabilities" - meaning an even stricter "working capital".  Zweig also clarifies this in a note in the revised edition.  It's also well known and accepted to be this calc...and has been tested as such in academia.
> 
> 
> ...




OK, stand corrected. 
Graham did define as such in "interpretation of fs" under Liquidating Value and NCAV.


----------



## luutzu (7 April 2015)

luutzu said:


> OK, stand corrected.
> Graham did define as such in "interpretation of fs" under Liquidating Value and NCAV.




Actually... might not have been wrong afterall.

Going through Security Analysis it seems that Net Current Assets, which is Net Working Capital (even though NWC can sometime be define by some people as the net net asset, i.e. CA minus total liabilities), it's taken to be just Working Capital (CA - CL).... 

From the examples he gave, seems NCAV is simply a literal NWC definition, not the net net.

Graham interpret NCAV to be a rough approximate of what he call Liquidating Value - the cash that can be taken out if all debt are paid and all assets sold for cash.

This, I think, is a shorthand to get to the Liquidating Value (LV)... but it is not the liquidating value itself - just a close approximate.

If we are to find the LV... Graham's examples and advice said we can't just take the Current Assets at its book value, but must do some adjustments - example, Cash is at 100% adjusted for liquidation; inventory at 50 to 70% book value; receivables at 75-90% book value etc.; for non-current assets then, it should be assume they could be sold for 20% their book.

So to get to these cigar butt bargains, its NWC approximates its liquidating value... the net net current assets could be too conservative as it take away all the liabilities but give no consideration for the longterm assets (which is worth at least something)... and at the same time assumes you could redeem all 100% of the current assets in a fire sale.

Being conservative is good i guess... but it might not be what Graham meant.

Also in the examples I didn't see him minus the non-current liabilities... but here it's probably because those companies doesn't have any, and conserving that all debts are to be paid is sensible.


----------



## systematic (17 April 2015)

In light of a recent thread on international investing, I thought I'd have a look for any decent sized NCAV stocks around the world (limited to exchanges that IB cover).  The idea being, as mentioned previously in this thread, that with this type of, "specialised" investing, you probably _need_ to expand your universe - if you want to actually have some stocks to invest in.  

Turns out that about right, with this method anyway.  Now, you don't expect to find many NCAV stocks of a decent market cap anyway - but that's the point of looking further afield.

After doing some clean up (e.g. Class H stocks in HK)...I was only left with 5 stocks (above $200M) that met both the criteria of net current assets being positive and priced at a 1/3rd discount (or more) by the market.

They are:

Hong Kong
Enerchina Holdings
Emperor Watch & Jewellery

Japan
Shinko Shoji Co
Funai Electric Co
Sanshin Electronics Co


----------



## systematic (28 April 2015)

At double its recent price, PPX Paperlinx still qualifies.

MPO Molopo Energy is another qualifier not already mentioned.


----------



## Tooth Faerie (1 May 2015)

What programs or platforms is everyone using to screen for these stocks? Also what metrics are you all using?

I've had no luck using the metrics available on commsec.


----------



## galumay (1 May 2015)

Tooth Faerie said:


> What programs or platforms is everyone using to screen for these stocks? Also what metrics are you all using?
> 
> I've had no luck using the metrics available on commsec.




Metrics are Current Assets, Total Liabilities and price or capitalisation. All on Commsec.

I dont think its possible to screen for NCAV on most platforms, I use a spreadsheet that I enter the data into and a formula to extract the NCAV.

You can screen to get a universe they are more likely to exist in, price firstly - I doubt you will find any companies trading for more than $1 that end up meeting the criteria.

Price to Book set to below 1 will help - nearly all NCAV candidates will have very low book value.

Price to Sales likewise, will be very low, maybe under 0.5

Obviously they will be low debt so set the Debt to Equity as low as possible.

Regardless, I dont believe you will find more than 1 or 2 in ASX, I believe you have to go hunting off shore to turn up more than a few. 

Of course even after you find one, you have to check whether its a worthwhile investment anyway.


----------



## systematic (1 May 2015)

galumay said:


> You can screen to get a universe they are more likely to exist in, price firstly - I doubt you will find any companies trading for more than $1 that end up meeting the criteria.
> 
> Price to Book set to below 1 will help - nearly all NCAV candidates will have very low book value.
> 
> ...




galumay suggests a couple of good ideas for those looking for them.
They all currently have a price to book less than 1.
I wouldn't use price...but galumay is correct - none currently over $1
You can also use market cap less than $100M to get them all.
Don't use price to sales though.  Some of them have high ratios.  i.e. That's how "bad" they are...even though they are "dirt cheap" their sales are so poor that they are actually expensive on that measure.

Also - remember - the point isn't _necessarily_ to find the good companies amongst these.  It's to roughly put you in the ball park of finding companies that are still worth something even if they go on the scrap heap.  I'm not saying you _shouldn't_ go looking for the better companies (that was actually one of the major points of this thread - to see people's analysis of these companies - unfortunately there has not been a lot of that).

For example, one of my ideas is that (maybe) a good way to analyse (or cull) further...is - rather than look for "good companies" or good quality criteria (for the reasons mentioned)...as these companies are dogs, perhaps the better measures to look at are more the "safety" criteria.  Z score, etc.  

Using these sorts of filters, leaves me with about 5 companies on ASX - currently.


----------



## Tooth Faerie (1 May 2015)

galumay said:


> Metrics are Current Assets, Total Liabilities and price or capitalisation. All on Commsec.
> 
> I dont think its possible to screen for NCAV on most platforms, I use a spreadsheet that I enter the data into and a formula to extract the NCAV.




Sorry I wasn't a bit clearer. I also have a spreadsheet to calculate NCAV but I was wondering if there was a stock screener that could perform, well a better screen than what I'm getting.



galumay said:


> You can screen to get a universe they are more likely to exist in, price firstly - I doubt you will find any companies trading for more than $1 that end up meeting the criteria.
> 
> Price to Book set to below 1 will help - nearly all NCAV candidates will have very low book value.
> 
> ...




I was using P/B < 1 as a screening metric but had to wade through so much garbage including illiquid exploration companies that it became very time consuming.

Thanks for the tip on Debt/Equity.

EDIT: Ugh, commsec's stock screener doesn't have a debt/equity metric toggle. I don't know how you guy are able to screen so well.




systematic said:


> galumay suggests a couple of good ideas for those looking for them.
> They all currently have a price to book less than 1.
> I wouldn't use price...but galumay is correct - none currently over $1
> You can also use market cap less than $100M to get them all.
> ...




I concur. After a quantitative look, I then look at the company on a qualitative basis. Most don't pass. The ones mentioned in this thread that seem okay are PPX and AOH. The others have either now exceeded NCAV or look dodgy.



systematic said:


> For example, one of my ideas is that (maybe) a good way to analyse (or cull) further...is - rather than look for "good companies" or good quality criteria (for the reasons mentioned)...as these companies are dogs, perhaps the better measures to look at are more the "safety" criteria.  Z score, etc.
> 
> Using these sorts of filters, leaves me with about 5 companies on ASX - currently.




Perhaps you're onto something with this idea.


----------



## systematic (11 May 2015)

IAU  Intrepid Mines qualified this time last week.  It's still at a 30% discount to NCAV (close enough to 33% to not get fussy!)


KRB Krucible Metals qualifies, though to date in this thread I haven't been posting picks with this low $ volume traded.


Which leads me to a question I might post in a new thread, to get answers from those who might not be following this one. I'll come back and edit this post to include link to that thread.


----------



## systematic (11 May 2015)

systematic said:


> Which leads me to a question I might post in a new thread, to get answers from those who might not be following this one. I'll come back and edit this post to include link to that thread.




Which would be this thread


----------



## systematic (14 May 2015)

A stock under 1 cent!
IGS qualifies.

This company just might take your portfolio to new highs (joke - read the company announcement)

Doing an average 58k a day in $volume since announcement.


----------



## systematic (25 May 2015)

CYG Coventry Group now qualifies as an NCAV at the required discount, and is one of the more liquid ones menioned thus far.  Also (relatively) one of the better quality of those mentioned thus far, in my opinion. 
Also pays a dividend - which is rare with these.


----------



## z15 (26 May 2015)

Hi. I recommend free unclestock.com screener for NCAV stocks. 



systematic said:


> CYG Coventry Group now qualifies as an NCAV at the required discount, and is one of the more liquid ones menioned thus far.  Also (relatively) one of the better quality of those mentioned thus far, in my opinion.
> Also pays a dividend - which is rare with these.




What about its restructure program? Costs are estimated to be in order 6-7milions A$. I think NCAV will be impaired. 



Cheers!


----------



## systematic (30 May 2015)

MSR Manas Resources qualifies.  Doing about $13k on the days it trades.  

It's an example of a sick looking company, impossible to buy.  But then, that's the thing with these...
It would have to nearly triple in price to reach NCAV.  But any kind of qualitative look would put you off.  Let's see what happens.


----------



## Miner (31 May 2015)

systematic said:


> MSR Manas Resources qualifies.  Doing about $13k on the days it trades.
> 
> It's an example of a sick looking company, impossible to buy.  But then, that's the thing with these...
> It would have to nearly triple in price to reach NCAV.  But any kind of qualitative look would put you off.  Let's see what happens.




please check common connection with MNS and PRU


----------



## systematic (11 June 2015)

MSN Emerson Radio is about the only qualifying US stock (worth mentioning) that comes up at the minute.

North of that border, I get VLN Velan Inc.


----------



## systematic (12 June 2015)

A quick look over Europe way and I only get a couple from Germany:

V33 Vtion Wireless Technology (technology company with operations in China) and EIN3 Einhell Germany (Home and Garden products).


----------



## systematic (12 June 2015)

Same sort of criteria.

Back down under,  I only get the previously mentioned SBB Sunbridge Group.


----------



## systematic (12 June 2015)

Just north of us I get:

Singapore
W81 Universal Resource and Services
A55 Asia Enterprises Holding

Hong Kong
0398 Oriental Watch Holdings
1079 Pine Technology Holding


----------



## systematic (12 June 2015)

Final stop is, appropriately, the land of the value investor.  We've had 9 NCAV stocks from our quick trip around the world, but this single country adds another 6 to the collection.  Any value investor who looks internationally will already know where I'm talking about.  Can you guess?  _Pretty easy guess, considering those already covered_...


----------



## systematic (12 June 2015)

...yep, the land of the rising sun is also well known as the land of the value stock.

Here we have:

7565 Mansei Corporation
6839 Funai Electric
2055 Nichiwa Sangyo
2737 Tomen Devices
8141 Shinko Shoji
7420 Satori Electric


----------



## systematic (12 June 2015)

Side note: Some of these stocks (above) from this little around the world trip have their major operations in China.  That might rule a few of them out for some.


----------



## systematic (14 June 2015)

This time I looked at demanding excess cash (over and above a generous current ratio).  
Sub-criteria were simply negligible debt (doesn't make sense to have excess cash and be heavily indebted), revenues (ongoing operations) and a deeper NCAV.  I then ommited those that were Chinese (e.g. HK class H) _or_ those that looked like they have their major operations there.

Left with only two, both UK listed:

BSD BSD Crown - an Israeli based IT company.

PVCS PV Crystalox Solar - UK based solar energy company with international operations.


----------



## Rainman (15 June 2015)

galumay said:


> Honestly, all the companies posted so far demonstate the problem with relying on the NCAV metric alone, they are all horrible companies and I doubt Ben Graham would have bought any of them.




Well, one can say that all the companies posted above are "_horrible companies_".  But the only horrible companies are those that do not provide an adequate return for the risk assumed or that result in permanent capital loss.  So let's look at the return of the companies posted above since 20 March 2015 (the date when they were first referred to):

AOH: 4%

ONC: -7.5%

SBB: 6%

FWD: 6.34%

This makes a total return since 20 March 2015 of 4.62% against a -4.5% return for the ASX/SP 200 for the same period.  Actually, the result of the posted stocks is better than 4.62% because ONC is buying back most of its outstanding shares at 0.22 per share.  So the total return for the period is 6.7%.  That is for a holding period of less than 3 months.  Annualised, the total return equates to over 26%.

Now, one might say that the return of holding a portfolio of stocks like these reflects the risk of a permanent capital loss.  All of these stocks stand a higher chance of ultimately becoming insolvent.  But that argument is not only wrong as a matter of fact.  It fails to understand the strategy behind buying stocks trading well below NCAV.  

To see why that is the case, consider ONC which is one of stocks posted above.  At its current closing price of 0.185, one can buy it for a more than 40% discount to its net cash alone.  ONC is thus truly a case where one can buy $1 for 0.60c.  Finally, if one counters that a portfolio of stocks trading below NCAV is inherently more volatile, then I would like to see the research or backtesting that shows that.  The research that I have seen suggests the opposite.


----------



## systematic (15 June 2015)

Rainman said:


> But the only horrible companies are those that do not provide an adequate return for the risk assumed or that result in permanent capital loss.




...I'm with you, Rainman.  

I haven't really been looking at results much (too early, was maybe going to come back in a years time).  Having said that - it might be cool to do a model portfolio once decided on where / when / how etc...will have to think about that.

In light of your post, I thought I'd take a look at the first lot of international stocks back in post #32 - just for fun (not expecting anything, after all, it's only been 8 weeks).

I've not looked at relevant indexes to compare performance, but in raw form (local dollars):

Hong Kong
Enerchina 77.5%
Emperor Watch and Jewellery 18.5%

Japan
Shinko Shoji 8.5%
Funai Electric 6.5%
Sanshin Electronics 30%

That's 28% averaged on those five, with none currently at a loss.  Now, this is all an insignificant time period / fluke etc.  But it would have been the real time experience of someone investing in these (for part of their portfolio, anyway).

These picks were the simplest of all (didn't demand positive revenues, low debt or anything...)
They were simply "raw" NCAV stocks _of a decent size / trading liquidity_.  I figured going offshore is different enough for a lot of investors anyway (such as myself) without dealing with illiquid microcaps.

Given the number (lack of) of these stocks available in Australia, this might actually make for a good "model portfolio" - simple "raw" NCAV in companies that are truly tradeable by the average (if small) investor.  That way you also avoid the influence of (albeit sensible and minimal) 'extra rules'.  If (and it is an if) you can get 5 or so stocks just 2 or 3 times a year, at a given point in time - it might be possible to have a "real" portfolio of these.  I wouldn't expect _quite_ as good a result as with the micro / nano caps...but it would at least be realistic.


----------



## systematic (15 June 2015)

systematic said:


> Hong Kong
> Enerchina 77.5%
> Emperor Watch and Jewellery 18.5%
> 
> ...





I should add:

a) If selling at NCAV, Enerchina would've been sold 2 days after buying for a 26% gain.

b) Looking at the exact same criteria as then, I only come up with the remaining 4 stocks already mentioned...nothing additional.


----------



## systematic (15 June 2015)

systematic said:


> Looking at the exact same criteria as then, I only come up with the remaining 4 stocks already mentioned...nothing additional.




...Interestingly, but perhaps not unexpectedly, going just a bit lower in min. market cap (~150M AUD, well and truly qualifying as an ALL ORDS stock by Aussie standards) increases the available opportunities three-fold to 12 stocks (including the 4 already mentioned).  All are available to trade via IB.

12 decent sized stocks available at a single point in time means that (most likely) a 20 or 30 stock portfolio of these should be easily available over the course of a year or two (hold times are going to be longer on average) - making it possibly a tradeable method for the individual investor willing to go global, but perhaps not willing to go as far as the micro/nano caps.

Obviously my thoughts have been evolving re: this strategy.


----------



## Rainman (15 June 2015)

systematic said:


> ...  it might be cool to do a model portfolio once decided on where / when / how etc...will have to think about that.




I have been running a model portfolio of net-nets since re-discovering Graham's strategy earlier this year and the results continually surprise me.  Why is it that these cheap, seemingly terminal stocks so clearly outperform the market?  

The research that I have read has not been able to fully account for it but all the studies undertaken are unanimous that value not only outperforms the market year after year but massively outperforms growth stocks.


----------



## systematic (15 June 2015)

Rainman said:


> I have been running a model portfolio of net-nets since re-discovering Graham's strategy earlier this year and the results continually surprise me.  Why is it that these cheap, seemingly terminal stocks so clearly outperform the market?




Yep, they do - and (obviously, since Graham wrote about it long ago) for a _very_ long out of sample period.  I'm as amazed as you.
Oh cool - someone actually trading these (or are you just monitoring them?)  Whereabouts are you investing (which regions?) and how small are you going, market cap / liquidity wise?




Rainman said:


> The research that I have read has not been able to fully account for it but all the studies undertaken are unanimous that value not only outperforms the market year after year but massively outperforms growth stocks.




Absolutely true.  Stocks and other asset classes, even.  For me, personally - I lean totally towards the behavioural reasons (without completely discounting the others) and these investor tendencies / human behaviour form a central tenet of my 'trading plan.'

I think the NCAV method is one of the more interesting of the different ways to approach value.  Definitely one for the individual / smaller investor - no one else can do it.


----------



## Rainman (15 June 2015)

systematic said:


> Oh cool - someone actually trading these (or are you just monitoring them?)  Whereabouts are you investing (which regions?) and how small are you going, market cap / liquidity wise?




I have just selected a few for a model portfolio and am only monitoring them at this stage.  However, given how happy I am with the results, I am going to invest in a selection of them in Japan and South Korea shortly.  These two places have the most net-nets as far as I am aware, although Hong Kong has a quite a few too.  

In terms of perimeters, I am not very comfortable in investing in anything that has less than a $20 million market cap.  Some other things that I watch out for are the burn-rates at which these companies are going through their cash.  If the burn-rate is 25% or more per year, they are out.  The same thing goes for debt-to-equity ratios of 50% or more.  I think that it is also critical to get a 10 year view of the company's financial position and see how it has changed over that time.  That way, you can see whether the business of the company is viable or in terminal decline.

For instance, someone mentioned Emerson Radio (MSN) in the US as a net-net candidate.  But I am not sure whether that business is any longer viable.  That said, it is trading at over a 45% discount to NCAV - and most of its assets are cash or cash equivalents.  So again, just because it is a crappy business doesn't mean you can't earn a great return on it.


----------



## systematic (15 June 2015)

Rainman said:


> I have just selected a few for a model portfolio and am only monitoring them at this stage.  However, given how happy I am with the results, I am going to invest in a selection of them in Japan and South Korea shortly.  These two places have the most net-nets as far as I am aware, although Hong Kong has a quite a few too.
> 
> In terms of perimeters, I am not very comfortable in investing in anything that has less than a $20 million market cap.  Some other things that I watch out for are the burn-rates at which these companies are going through their cash.  If the burn-rate is 25% or more per year, they are out.  The same thing goes for debt-to-equity ratios of 50% or more.  I think that it is also critical to get a 10 year view of the company's financial position and see how it has changed over that time.  That way, you can see whether the business of the company is viable or in terminal decline.
> 
> For instance, someone mentioned Emerson Radio (MSN) in the US as a net-net candidate.  But I am not sure whether that business is any longer viable.  That said, it is trading at over a 45% discount to NCAV - and most of its assets are cash or cash equivalents.  So again, just because it is a crappy business doesn't mean you can't earn a great return on it.




Love it.  And you're the first person on this thread to talk about why you'd use which "extra rules" (possibly).

With a lower cap of $20M (and some patience) I think it might be possible to be a little more selective.

Just checked the 12 stocks mentioned a couple posts above.  Purely coincidental, but they all have sales and they all (but 2) actually have operating earnings.  Might be because of the higher cap range.
Previously I looked at free cash flow, net financing etc.  Jury still out for me on all that.  Based on general research, I'd suggest that an NCAV that is diluting its shareholder's stake is really worrisome; if the management had some belief in the future of the company, they ought to be buying stock.  Nonetheless, it's comforting (as you mentioned in your example with Emerson Radio) to know that research containing the spectrum of these companies shows the results we're familiar with.


----------



## Rainman (15 June 2015)

systematic said:


> ...  Based on general research, I'd suggest that an NCAV that is diluting its shareholder's stake is really worrisome; if the management had some belief in the future of the company, they ought to be buying stock...




Totally agree with that.  You want to see a stable share count.


----------



## systematic (7 July 2015)

*ORS* Octagonal Resources, qualifies.


----------



## systematic (19 August 2015)

Couple of energy companies qualify...

*OEL *Otto Energy

*NEN *Neon Energy


----------



## db94 (3 September 2015)

was doing a bit of value searching today:

According to gurufocus:
CSR has a graham number of $3.67 whilst its currently @ $3.18 - note it also has a piotroski f score of 9
BEN has a graham number of $12.48 whilst its currently @ $10.52

gonna look further into them tomorrow


----------



## systematic (20 September 2015)

I get $3.56 for CSR and $14.58 for BEN, or thereabouts.

CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).


Anyway - my main reason for replying was just to alert anyone following along who is not quite familiar with this stuff...the "Graham number" is *not* the NCAV that is being discussd / posted on in this thread.
CSR and BEN would never qualify under NCAV.


----------



## Rainman (20 September 2015)

systematic said:


> I get $3.56 for CSR and $14.58 for BEN, or thereabouts.
> 
> CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).
> 
> ...




Systematic, I take it that the performance of ONC has not escaped you.  Since you first mentioned it on here back on 20 March 2015, ONC is up 150%  - and this is in a market that is down almost -4.5% for the year.  

ONC is a great case study of why the NCAV strategy is so surprisingly effective.  If you have a portfolio of net-nets - say more than 10 but probably not more than 30 (a number that you'd be hard pressed to find across the world's exchanges anyway) - you only need a couple of stocks to perform like ONC to achieve superior returns.


----------



## wjl (20 September 2015)

How does STO stack up at the current time? Tried whizzing through the numbers but on a Sunday evening I'm the walking dead and no PC to access in front of me just this bloody iPhone. W


----------



## db94 (20 September 2015)

systematic said:


> I get $3.56 for CSR and $14.58 for BEN, or thereabouts.
> 
> CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).
> 
> ...




My apologies!! Will keep looking at your thread and watch none the less


----------



## Rainman (21 September 2015)

wjl said:


> How does STO stack up at the current time? Tried whizzing through the numbers but on a Sunday evening I'm the walking dead and no PC to access in front of me just this bloody iPhone. W




STO is not a net-net.  MGX is a strong net-net because it is currently trading for below the amount of cash and long term deposits on its book.  

MGX has cash/cash equivalents and term deposits of $334 million and total liabilities of $106 million. 
MGX's current market cap is $191 million.  That means theoretically that, if you liquidated MGX tomorrow and paid off all its liabilities, you would get the inventory, property, plant and equipment for free and still walk away with $37 million cash in your pocket.  

But before considering MGX as a potential investment, you must first work out what its cash-burn rate is.  This is especially important with a highly capital intensive industry like mining which is what MGX is in.  I have not worked out MGX's cash-burn rate but looking at its most recent balance sheet, I can see that it is not negligible.


----------



## ThirtysixD (30 October 2015)

Once you buy a net net or ncav how long are you supposed to hold it for? I have not read grahams book for years!

I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20. 

After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).


----------



## Rainman (30 October 2015)

ThirtysixD said:


> Once you buy a net net or ncav how long are you supposed to hold it for?




That's a tough question.  Theoretically, it is until the market cap rises at least back up to NCAV.  But of course if the company's NCAV deteriorates, it is probably as soon as possible.  



ThirtysixD said:


> I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20.




Are you searching only in Australia?  There are hardly any worthy net-nets here.  Try Japan or Hong Kong.   



ThirtysixD said:


> After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).




The research on the outperformance of a net-net strategy has been tested and re-tested for 40 years or more.  The results are clear: it is a market-beating strategy.


----------



## luutzu (30 October 2015)

ThirtysixD said:


> Once you buy a net net or ncav how long are you supposed to hold it for? I have not read grahams book for years!
> 
> I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20.
> 
> After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).




You guys don't also crack the annual reports open to see close up?


----------



## Rainman (30 October 2015)

luutzu said:


> You guys don't also crack the annual reports open to see close up?




Always.


----------



## ThirtysixD (30 October 2015)

Rainman said:


> That's a tough question.  Theoretically, it is until the market cap rises at least back up to NCAV.  But of course if the company's NCAV deteriorates, it is probably as soon as possible.
> 
> 
> 
> ...




Top 5000 US stocks according to market cap (2002 onwards).

I agree it is market beating.

However in my backtests drawdowns were around 85% in 08/09 erasing gains over a long period. Performance was also highly dependent on the start date chosen (compounding returns tend to run away if stocks went up early).


----------



## ThirtysixD (30 October 2015)

luutzu said:


> You guys don't also crack the annual reports open to see close up?




Used to but not so much anymore!

Ended up choosing time over accuracy (but thats another discussion)


----------



## systematic (5 November 2015)

Just more resource companies...

*CHZ* Chesser Resources qualifies.

*RMP* Red Emperor Resources qualifies.

*AGS* Alliance Resources qualifies.


----------



## systematic (19 January 2016)

*GRR* Grange Resources (yes, just another mining company - that's pretty much all we get here) qualifies as it touches 8.6c.  

Think it qualified extremely briefly as an NCAV a few months back (like for a day or two).  Probably one of (if not the) biggest market cap / liquid Australian companies mentioned thus far on the thread.  And although a miner, it's one of the few posted that have earnings, cash flow etc (has even paid dividends) and a few other "quality" metrics.  Like all NCAV's though, it's a long-term play...the current momentum indicates a poor outlook in the near term.

As it's January, if I were an NCAV investor I might wait for annual reports to come out.  Maybe.  Possibly not though (surprises can be part and parcel of these strategies).


----------



## systematic (10 April 2016)

*KAR* Karoon Gas qualifies.

I've often not bothered posting another mining/energy/biotech company; but mention this one as it's by far the biggest NCAV company I've seen on the ASX.


----------



## Rainman (11 April 2016)

systematic said:


> *KAR* Karoon Gas qualifies.
> 
> I've often not bothered posting another mining/energy/biotech company; but mention this one as it's by far the biggest NCAV company I've seen on the ASX.




With all net-net resource stocks, you are best to work out their cash-burn rates.  If they are using up more cash than they are generating, they will need to borrow or to raise equity.  Thereafter, in either case, they are unlikely to remain net-nets.


----------



## systematic (11 April 2016)

Thanks Rainman.  Yeah, same goes for the cash intensive pharma's.  I can't remember where I read it (or if I dreamed it)...that Graham wouldn't be looking for these stocks among these types of companies.

That's why there's not much to report lately.  99% of the time there are only resource/energy/health care companies that come up.  Hardly ever a consumer stock etc.

Any further insights on whether you'd invest in these sectors or not?

As per previous thoughts - I think to invest in these I'd go global.  More opportunities to build a portfolio.  The side effect of going global would also mean you could be just a little more selective about stuff like which sectors etc.


----------



## odds-on (11 April 2016)

It seems to me that it is difficult to find enough stocks listed on the ASX meeting the NCAV criteria to create a diverse portfolio. An investor would have to go international. Geoff Gannon has some informative posts about NCAV strategies.

Do you think NCAV stocks make good trading stocks? Gerald Loeb recommended liquid active leaders who make plenty of cash. An NCAV does not meet this!


----------



## systematic (11 April 2016)

odds-on, your post reminded me that I finally want to make some comments/conclusions on this thread...and in a way, close it out.





odds-on said:


> It seems to me that it is difficult to find enough stocks listed on the ASX meeting the NCAV criteria to create a diverse portfolio. An investor would have to go international.




...100% agree.  I think this has been a useful exercise over approx 12 months to show any prospective NCAV investor (in Australia) that they are definitely going to have to go off shore (as is commonly known, Japan is the storehouse of NCAV opportunities).  Australia has a long tail of micro (nano, really) cap stocks.  I didn't have any solid expectations, but in hindsight, I'm probably slightly surprised not to have found more (well, there are many - but they're always the previously mentioned mining/energy stocks).

I've personally looked globally (and that includes earlier in this thread) and there is definitely the opportunity for the adventurous indie investor to build that holy grail of a portfolio of stocks where $1 was purchased for 50 cents.  So I don't want to discourage anyone.  But any newbie who becomes excited about NCAV stocks should get it straight from the beginning - either go international or have long bouts of nothing to invest in (which really hurts results).

There are so many opportunities - and given that you need less than one new stock per month on average...you can actually buy real companies that produce something but are going through terrible times/expectations.  

But I can conclude this thread with - you will not be able to find enough qualifying stocks on the ASX to make this approach feasible.


-------------------------------------------------------------------------------------------------------------




odds-on said:


> Do you think NCAV stocks make good trading stocks? Gerald Loeb recommended liquid active leaders who make plenty of cash. An NCAV does not meet this!




...Well, NCAV stocks are rather illiquid in general - so as you say...that doesn't make for a trading stock.  The shorter your time frame, the more liquid you want your instrument to be (if that's what you meant).  For a long term hold - illiquidity can be a positive.  


-------------------------------------------------------------------------------------------------------------


Also (and I point this out to any current or future newbies, not you odds-on)...remember that NCAV stocks aren't actually _meant_ to look good (e.g. make plenty of cash).  The whole approach is about buying a horse where the carcass is worth more than what you paid for the live version (no, I can't believe I just used that analogy, either).  I think I used a better analogy earlier in the thread.  If you were a car wrecker business person...and you want to pay me $500 for my car - and I take the $500 - if you're a good car wrecker person, you worked out that the car was worth more in scrap than the $500 you paid me.  The car is junk.  But the junk is worth something - *at the right price*

I highlight that point strongly, particularly for any newbies...as I really do believe it's a point that gets lost sometimes.  

There's several types of 'value' in stock investing.  There's the free cigar puff (Warren Buffett's term) of NCAV junk stocks.  There's 'distressed' value - a turnaround in company fortunes will provide a disproportionate bounce in pricing.  And (back to Buffett) there is buying the so-called, 'wonderful company at a cheap price' (not paying too much for a fantastic company).  There's other types as well (the small, speculate growth stock...where you aren't paying 'TOO' much for the prospective earnings, takeover with better management value etc)

That topic is probably worth a thread, and I might start one, on that note.  I'd be interested in how other value investors actually see value.  Thanks for getting me thinking!


-------------------------------------------------------------------------------------------------------------


Last point - if any reader of this thread has any desire for me to post any future findings (of NCAV stocks on the ASX) - please let me know (here or PM).  I'm happy to do so, but am just as happy to 'retire' the thread as well (obviously the thread is open, and an NCAV stock can always be posted anyway, for interest).

Or if anyone has a burning desire to start monitoring a global portfolio of NCAV stocks...let me know.  But I suspect that there are far more investors who, like myself, invest domestically (though I can see that changing in the near to medium term).  If there's interest (as well as a diligent person who will record results including currency effect, and monitoring trades for sell signals - something not necessary thus far in this thread) we could probably do that.  It wouldn't be un-interesting to see the result of that, in 10 years time.  I'd contribute, but only with help (and knowing that someone was interested).

Final last point - this thread has never been to prove or disprove the NCAV approach (that's already been done).  This was simply about posting, in real time, opportunities on the ASX.    

Thanks to anyone who has read the thread - I hope you've got at least a little out of it!

This post is just to 'close out' the thread, as I feel that's where it's at (unless the above happens and we go global).  Closing it out doesn't mean you can't post to it, or that it's locked.  If I find an interesting ASX stock that qualifies, I may well post it.  Closing out the thread simply means I'll no longer be deliberately doing so.


----------



## galumay (11 April 2016)

Thanks Systematic, I dont think anyone could disagree with your broad points in this thread and its been an interesting thread to follow. 

The discussion around various definitions and approaches to value also sounds worthwhile!


----------



## Tooth Faerie (19 April 2016)

systematic said:


> *KAR* Karoon Gas qualifies.
> 
> I've often not bothered posting another mining/energy/biotech company; but mention this one as it's by far the biggest NCAV company I've seen on the ASX.




Nice choice for your last contribution to the thread haha.


----------



## systematic (31 May 2016)

*WMC* WONHE Multimedia Commerce qualifies. Mentioned as it's quite large and liquid (as far as these stocks go), and it's outside of materials/pharmas/energy...in the tech sector.

Would need to roughly double in price to hit NCAV.


----------



## Rainman (5 June 2016)

Tooth Faerie said:


> Nice choice for your last contribution to the thread haha.




I have got KAR in my NCAV portfolio.  I don't normally include resource companies as part of my NCAV portfolio because they tend to burn through cash so quickly.  But I have made an exception here - hopefully one I don't live to regret.  

I have also added MHI.  It is trading at around a 30% discount to NCAV.  Does anyone else hold MHI?


----------



## Value Hunter (5 June 2016)

I definitely think to implement the Net net strategy effectively one needs to be investing in multiple international markets as no one single market has enough of these stocks these days to make a portfolio. Maybe in another market crash scenario there may be enough of these stocks in Australia but not in normal market conditions.


----------



## Rainman (6 June 2016)

Value Hunter said:


> I definitely think to implement the Net net strategy effectively one needs to be investing in multiple international markets as no one single market has enough of these stocks these days to make a portfolio. Maybe in another market crash scenario there may be enough of these stocks in Australia but not in normal market conditions.




Yes, you're right, although it probably depends on how many stocks you think are "enough".  I don't think you need more than 10.  But you'd be hard pressed to find even 10 worthwhile net-net candidates on the ASX.  I have found 7 that I would like to propose.  They are:

CYG at $1.055


MHI at $0.19


KAR at $1.405


CND at $0.19


ZGL at $0.165


CMI at $1.00


ABY at $0.295
The above prices are as at the close of the market on 3 June 2016. 

Let's check back in a year and see how they have performed.  By way of full disclosure, I own CND, CMI, CYG, MHI and KAR.


----------



## Rainman (6 June 2016)

Rainman said:


> Yes, you're right, although it probably depends on how many stocks you think are "enough".  I don't think you need more than 10.  But you'd be hard pressed to find even 10 worthwhile net-net candidates on the ASX.  I have found 7 that I would like to propose.  They are:
> 
> CYG at $1.055
> 
> ...




We will need to delete ABY from the list: I just checked and it is no longer trading below NCAV.  It doubled between the beginning of September 2015 when I first started considering it as a NCAV candidate and mid-May 2016.  Its market cap now exceeds its NCAV.


----------



## Value Hunter (6 June 2016)

To me a worthwhile net net is a company which is:
-Not a resources or biotech or  speculative high tech company. 
-It must have generated positive operating cash flow in the last reporting period (could be a quarter or half year or full year. Whatever the most recent report was)
-Must have an overall positive retained earnings figure (i.e. over its full life to date as a listed company it generated a net aggregate positive earnings figure). i.e. some losing years are okay but an overall aggregate loss since listing is not okay. 
-I also stick by the strict Graham defintion that it must sell at a price which is no more than two-thirds of net net current asset value. Net net current asset value is defined as current assets minus total liabilities. 

I think 10 equally weighted stocks meeting all of my above criteria should be sufficient to create a diversified portfolio.


----------



## Rainman (6 June 2016)

Value Hunter said:


> To me a worthwhile net net is a company which is:
> -Not a resources or biotech or  speculative high tech company.
> -It must have generated positive operating cash flow in the last reporting period (could be a quarter or half year or full year. Whatever the most recent report was)
> -Must have an overall positive retained earnings figure (i.e. over its full life to date as a listed company it generated a net aggregate positive earnings figure). i.e. some losing years are okay but an overall aggregate loss since listing is not okay.
> ...




I agree with all of that.  One of the hardest things I encounter in Australia is finding NCAVs that are trading at that minimum one third discount to NCAV.  It makes me realise just how efficient the Australian market actually is.


----------



## Value Hunter (6 June 2016)

I am not sure I agree with you there. Is it a case of the market being relatively efficient or a case of the market being overvalued? I think it is the latter. There are few bargain stocks and many overvalued stocks (at least in my opinion) as opposed to the market being relatively efficient (which would mean few bargain stocks *and few overvalued stocks*.


----------



## Rainman (6 June 2016)

Value Hunter said:


> I am not sure I agree with you there. Is it a case of the market being relatively efficient or a case of the market being overvalued? I think it is the latter. There are few bargain stocks and many overvalued stocks (at least in my opinion) as opposed to the market being relatively efficient (which would mean few bargain stocks *and few overvalued stocks*.




Well, the fact that the market has managed to reduce the gap between price and value in most NCAVs is the whole basis on which investment in NCAVs is predicated.  If the gap between price and value were never to close, investment in NCAVs would remain dead money.   But happily, as Charlie Munger has said, the efficient market hypothesis is basically correct.  It's just that the purists take the theory too far.  

Still, you might be right that the reduced number of worthwhile NCAVs possibly indicates that the broader market is overvalued or is reaching overvaluation.


----------



## Rainman (7 June 2016)

Value Hunter said:


> ...There are few bargain stocks and many overvalued stocks (at least in my opinion) as opposed to the market being relatively efficient (which would mean few bargain stocks *and few overvalued stocks*.




Further to this, I don't know about you but I just find the Australian stock market on average generally efficient in the EMH sense.  I remember reading an article a few years back that basically agreed with that view and attributed the reason for it to the number of professional fund managers that Australia has relative to the size of its share market.  

By contrast, China and Hong Kong are two markets that I consider particularly inefficient.  In the case of China, not only is it inefficient, it is extremely volatile.  But both the inefficiency and the volatility are largely due to a greater proportion of flighty day traders in that market relative to the number of level-headed fund managers who, as in more developed markets, generally have some idea of the value of what they own.


----------



## sinner (7 June 2016)

Rainman said:


> Further to this, I don't know about you but I just find the Australian stock market on average generally efficient in the EMH sense.  I remember reading an article a few years back that basically agreed with that view and attributed the reason for it to the number of professional fund managers that Australia has relative to the size of its share market.
> 
> By contrast, China and Hong Kong are two markets that I consider particularly inefficient.  In the case of China, not only is it inefficient, it is extremely volatile.  But both the inefficiency and the volatility are largely due to a greater proportion of flighty day traders in that market relative to the number of level-headed fund managers who, as in more developed markets, generally have some idea of the value of what they own.




Just a note, from my experience the efficiency of the market as pertains to certain types of value stocks, especially like 0.66*NCAV, is largely dependent on overall market liquidity.

In the depths of Oct 2008, there were a huge amount of net-nets, as market preference was for liquidity. Today, when the market is flush with liquidity and looking to invest, the efficiency is higher and the amount of net-nets are much fewer. You can see older posts in this thread show backtests where the drawdown was >80% in 2008 where the marginal investor stopped caring about buying $1 for 66c.

So efficiency in this context is not a constant, expectations need to be aligned correctly.


----------



## Rainman (7 June 2016)

sinner said:


> Just a note, from my experience the efficiency of the market as pertains to certain types of value stocks, especially like 0.66*NCAV, is largely dependent on overall market liquidity.
> 
> In the depths of Oct 2008, there were a huge amount of net-nets, as market preference was for liquidity. Today, when the market is flush with liquidity and looking to invest, the efficiency is higher and the amount of net-nets are much fewer. You can see older posts in this thread show backtests where the drawdown was >80% in 2008 where the marginal investor stopped caring about buying $1 for 66c.
> 
> So efficiency in this context is not a constant, expectations need to be aligned correctly.




I think what you are saying is summed up by the key failing of the EMH: namely, that its theorists were right to conclude that the market is usually efficient but wrong to conclude that it is always efficient.

But market efficiency and liquidity in the sense of perfect liquidity are really the same concept: perfectly liquid pricing efficiency.

Personally, I like the way Howard Marks describes liquidity: it is never there when you need it and always there when you don't.


----------



## systematic (15 July 2016)

Large and liquid by the standards of the usual qualifier (and outside mining/energy/pharma)

*SRF* Surfstitch Group qualifies at the current price below 20c.


----------



## Barneyb (20 June 2017)

I recently became reinvigorated to look for some bargains while reading about some of Carl Icahn's early investments. I have a bit of capital and am not averse to engaging directors where appropriate.

Anyway, I ran a Bloomberg equity screen (I work in the industry) for ncav bargains in Australia using the criteria below: 




Here are the five names that it threw up:




I like to check the latest filings on the ASX website to make sure there are no data issues as well as check the cash burn. What I found was:


*Lantern Hotel Group* has sold assets and returned capital. Their current NCAV is estimated to be 0.9 to 1.2cps (see link) so with the stock trading at 1 cps there is no value here.

*Premiere Eastern Energy* is a Chinese company. The Bloomberg financial data matches with their accounts. Their operating businesses reported cash outflows of nearly $50m in CY16. At this run-rate they will burn through their NCAV in around 3 years. There were some recent audit issues that the directors deemed immaterial. Their auditor is Grant Thornton and their audit partner is Justin Humphrey.

_*Spicers Limited*_ data in Bloomberg does not capture $255m in preference shares as liabilities so NCAV is actually negative for this company.

*Sunbridge Group* is a Chinese company. The Bloomberg financial data matches with their accounts. Their operating businesses reported cash outflows of $1.3m in the year to March 17. At this run-rate their NCAV will last around 40 years. Their auditor is Grant Thornton and their audit partner is none other than Justin Humphrey. 

*XPD Soccer Gear* is also a Chinese company. The Bloomberg financial data matches with their accounts. Their operating businesses reported cash inflows of $9m. If this continues their NCAV will increase over time. Their auditor is (you guessed it) Grant Thornton and their audit partner is (you guessed it again) Justin Humphrey. 
So looking at the finer detail, we are left with three true NCAV value stocks on the ASX. All are Chinese. All are audited by Grant Thornton. And all are signed off out of Grant Thornton's Adelaide office by a partner by the name of Justin Humphrey.

Having made some inquiries, my feeling is that fabricating the accounts would be difficult for these companies. Auditors check bank balances with banks rather than relying on statements and I have to think that there would be some serious heat on our friend Justin Humphrey at Grant Thornton given where these stocks trade.

That said, one of his other companies (TWT Group, also Chinese, also a NCAV value stock) delisted in 2014 supposedly due to non-payment of receivables so just because the bank balances check out doesn't mean their won't be problems.

For me personally Premiere Eastern is burning too much cash and has volatile working capital so I have steered clear. XPD Soccer has a market cap of $18m which means for me to get to 5% (necessary to call for an EGM demanding a board spill) would cost $1m which is more than I want to put into a single name.

This leaves SBB. Thoughts anyone?


----------



## systematic (1 July 2017)

Barneyb said:


> This leaves SBB. Thoughts anyone?




...Only that it appeared in the first list on this thread 2.25 years ago and has been an NCAV stock ever since (well, whenever I've taken a look, so possibly not all the time).  It has gone from ~5c to 1c in that time, a loss of 80%.  It would have to be one of the cheapest NCAV stocks out there - requiring a 10 bagger move to get to NCAV (as at December statements).
Heck, it's even a very low NCAV stock using just the cash alone.

It 'looks' to me (and it did before) like the 'perfect' NCAV stock.  I mean, it's even got cash flow and the like.

With upcoming reporting season, as I've said before, a positive surprise could give the price a jump, whilst the downside, theoretically, seems low.  But of course, -80% stocks can go on to lose another 100%(!) 

Hope you let us know what you decide, or if you had already etc.


----------



## systematic (1 July 2017)

systematic said:


> It 'looks' to me (and it did before) like the 'perfect' NCAV stock.  I mean, it's even got cash flow and the like.




This was meant to read:
It 'looks' to me (and it did before) like the 'perfect' NCAV stock.  I mean, it's even got cash flow and the like.  But is it?


----------

