kcchongnz blog
Personal experience in Graham net current asset valuation investment strategy Kcchongnz
Personal experience in Graham net current asset valuation investment strategy
Kcchongnz
"It is absurd to think that the general public can ever make money out of market forecasts."
Graham Net Current Asset Valuation or net net valuation is the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets.
|
It worked in the 1920's but does it work nowadays? |
From 2000 to 2012, NCAV stock investing strategy earned an annualized return of 18.28% vs 1.57% for the S&P500 and 5.31% for the Russell2000.
Yes, it did work a couple of years ago, and that was in US. But does it work in Bursa?
I would be grateful if someone can provide a research on this in Bursa. I have about a year of experience on it after I have written this article at the top of this thread about this balance sheet investing as shown in the link below.
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/36493.jsp
Yeah yeah yeah, I know people will accuse me of looso (repeating things) as I have written about this Graham net net many times in i3investor alone, but surely good things worth repeating, don’t they?
Here is the approximately one year plus results ended 23rd July 2014 from this NCAV strategy for three property companies mentioned in this article:
Table 1: Net net one-year plus return of three property companies
|
No |
7/23/2014 |
Ref price |
Now |
Dividend |
Gain/loss |
return |
|
1 |
Daiman |
2.630 |
3.900 |
0.120 |
1.390 |
52.9% |
|
2 |
KSL |
2.020 |
2.840 |
0.000 |
0.820 |
40.6% |
|
3 |
Plenitude |
2.100 |
2.980 |
0.060 |
0.940 |
44.8% |
|
|
Average |
46.1% |
||||
|
|
KLSE |
1627 |
1872 |
0 |
245 |
15.1% |
All the three property stocks returned an average of 46.1% during the one year period, with nine of them less than 40%, compared to the return of the broad market of just 15.1% during the same period. This is despite the cooling measures imposed by the relevant authorities during the last national budget. Surely this wide discrepancy of returns is not purely due to events of luck, is it?
In fact, I have used this NCAV strategy beyond the property companies. The table below shows the return of 10 stocks of various industries which I have written about and published in i3investor as compared to the market.
Table 2: Graham net net portfolio return
|
Graham net net |
|
|
|
|
|
|
|
No. |
7/23/2014 |
Ref price |
Now |
Dividend |
Gain/loss |
return |
|
1 |
Daiman |
2.630 |
3.900 |
0.120 |
1.39 |
52.9% |
|
2 |
KSL |
2.020 |
2.840 |
0.000 |
0.82 |
40.6% |
|
3 |
Plenitude |
2.100 |
2.980 |
0.060 |
0.94 |
44.8% |
|
4 |
Insas |
0.630 |
1.240 |
0.020 |
0.63 |
100.0% |
|
5 |
PMCorp |
0.150 |
0.220 |
0.000 |
0.07 |
46.7% |
|
6 |
Hexza* |
0.635 |
0.820 |
0.050 |
0.24 |
37.0% |
|
7 |
Prkcorp |
2.820 |
3.470 |
0.000 |
0.65 |
23.0% |
|
8 |
Kuchai |
1.200 |
1.460 |
0.000 |
0.26 |
21.7% |
|
9 |
KESM |
2.040 |
3.120 |
0.030 |
1.11 |
54.4% |
|
10 |
FACB |
1.260 |
1.350 |
0.040 |
0.13 |
10.3% |
|
|
|
|||||
|
|
Average |
1.55 |
2.14 |
0.03 |
0.62 |
43.1% |
|
|
KLSE |
1627 |
1872 |
0.000 |
245 |
15.1% |
The average portfolio return of the 10 stocks is 43.1%, close to three times the return of the broad market of 15.1%. None of them had a return of less than 10%. The great results are not limited to property companies alone.
Are they riskier than the market? I do not think so as they all have quality assets; very little downside but plenty of upside if the price-value gap closes.
Did they have high growth? High revenue and profit growth? None of them does.
Did they even have very good earnings? I don’t think so but they generally had positive earnings, albeit small. They are however not some kind of cash burners.
Does NCAV investment strategy require any special catalyst to unlock its value? I didn’t hear any of it for any of those stocks in the past one year, did you?
It may be better to invest with the mind set of inverting, i.e. take care of the downside (pay low price by buying quality assets at the cheap) and let the upside takes care of itself?
Or should we pay high price for profit growth expectation, just an expectation; or rumours that the insiders will goreng the stocks (pushing it up of pressing it down) for our benefits in the future (big boys, insiders and manipulators always have our interest in their mind); or insiders’ news that the company is going to be awarded a big contracts, CEOs talking in the press, in the business periodicals, radio and TV about how undervalue are their stocks (no talking about how to improve business and it is unimportant) and that they are going to experience explosive growth (acquisition trails), striking oil, finding gold etc?
Or is it better for ourselves to equip ourselves with some fishing skill and safety knowledge to check if all the above are true?
K C Chong (23rd July 2014)
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Discussions
4 people like this. Showing 16 of 16 comments
kcchongnz , nice experiment and wonderful conclusion.
One thing to take note, the quality of NCAV is important. For property counters, the asset is mostly land. If you perform the same on industrial product counters where the NCAV is in equipment and factory, the result would probably be poor.
2014-07-23 17:34
Very Good!
Great Post!
I am happy to say I own all the 10 Net Net Value Stocks Except For Kuchai. I missed Kuchai. Hope I can get some Kuchai on weakness. For KESM I also bought its related Company in Singapore called Sunright.
2014-07-23 19:04
NoW is another playing. Mainly tech stocks, you see redtone, ock, inari, notion, ghl, etcs
2014-07-23 19:20
I think the return lies in when do you purchase the share. What is entry point once you know it is a great deal?
2014-07-23 19:27
Well,
1)asset mispricing on property could be seen as very illiquid assest in the future, longer gestation period, unfavorable policy, rising rate and so on. Hard to say that market is always wrong on mispricing.
2) Business mispricing could be due to passive and conservative management, risk exposure, missing earning target due to high expectation, stagnant growth and so.
End of day up to us to observe and evaluate the mispricing is correct, wrong, Or overdone. And take advantage of Mr Market.
TQ
2014-07-23 19:56
Having said that, always tons of mispricing in the market due to different perspective and time horizon i guess.
2014-07-23 20:08
1)Nothing bad happens for past one year as anticipated so market naturally closing up the discount.
If something bad happens, the discounts will be further widening up.
2) Same as we give premium to good business value, But if company misses the target, the premium will be wiped out Or even go into discount.
So be Conscious if we are right or wrong. Having said that, it is safer to Buy at Discount and Sell at premium, right?
2014-07-23 20:59
I think the above mentioned stocks are no longer candidates for Graham Net2 since prices have rise significantly. Since they are not good earner nor Graham's Net2 candidates, is that means they are not worth investing?
2014-07-27 22:48
Share Prices Are Not Static. It moves from undervaluation to overvaluation and then back from overvaluation to undervaluation again. This is especially true for cyclical stocks.
For utilities and growth stocks we can ride on them as long as fundamental is intact.
We must buy below intrinsic value and sell above intrinsic value.
Our Focus Must Then Be On Undervalued Shares overlooked by the General Market.
2014-07-28 00:37
Posted by solangeAM > Jul 28, 2014 12:56 AM | Report Abuse
WTF Graham Net Net my foot.
You are talking as if only these few counters selected by you have gone up, take a look at the whole market will yea, can't you see ALL the counters have gone up?
1)Did anyone say that only these few counters have gone up?
2)"All the counters have gone up"? You sure? I don't think I can see it.
3)Which period you are referring to that "All the stocks have gone up"?
4) Give me the period you are referring to and do you want me to show you some stocks have gone down during this period?
5)How is the performance of the broad market for the period you are referring to? Please substantiate.
6)Can you show us your portfolio of stocks which "have all gone up"? Can substantiate if you have posted somewhere before and show evidence that they "have all gone up".
7) Can you compare your "stocks that all have gone up" with the broad market? Surely you need a reference bench mark, don't you?
I am sure you can substantiate your statement above.
2014-07-28 12:27
let us all lived in peace here .... so long we all make money... Saling maaf memaafkan Selamat Hari Raya Aidilfitri.. Happy Holiday ..... hihihihi
2014-07-28 13:57
Posted by solangeAM > Jul 28, 2014 01:46 PM | Report Abuse
I have invested by using the ears and my chances of hitting the same return as you have been more or less the same, meaning your Graham's approach return is more or less the same as my ears' return as such yours and mine returns should be due to excess liquidity in the market and nothing more
Ok, ok, ok, great investing strategy you have; investing using ears. Congratulations.
But have you given us your guidance to my questions above so that we can learn from you? Anyone of them?
2014-07-28 14:40
Is there a software we can use to screen thru and shortlist net-net stocks?
2014-07-28 22:18
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Can't say i don't agree as figures speak louder.
Have to be selective though. KC, i keep on thinking of Keck Seng as to be one of the major net asset play every time you mentioned net asset play.
Can offer some opinion?
2014-07-23 15:29