Using A Net-Net Strategy: The NCAV Graham Method

Updated on

Using A Net-Net Strategy by The Value Edge

Over the years of investing, my partner and I have experimented with various valuation models. From the simplest of just investing based on dividend yields to one of the most complex models by Colombia Business School. The purpose of my article today is not about sharing all the various models we have used but just one – the NCAV strategy.

NCAV – Net Current Asset Value is argued by Graham to be approximately the company’s liquidation value. The strategy is just screening for all companies trading below their NCAV and investing in the best 20 companies. With so many more complex valuation models out there, many may be skeptical about such a simple strategy. However, I would like to point out that success with investing is not based on the complexity of your valuation model but rather how strong your logic is.

Of course, words are all meaningless without results to back it up.

Over the period of 3 years, it can be seen that the NCAV portfolio not only outperformed the S&P 500 but by did so by a huge margin of approximately 5x.

Net-Net Strategy


Over the next 3 years, it can be seen that the NCAV portfolio under performed the S&P 500 (INDEXSP:.INX). However, the important thing to note would be the underperformance is very marginal.

Net-Net Strategy


On the last period, it can be seen that the NCAV portfolio once again outperformed the S&P 500. Interestingly to note, while the NCAV portfolio was affected much more than the S&P500 during the Global Financial Crisis, it recovered at a much faster pace as compared to the S&P 500. Whether this is an one-off incident or a trait for a NCAV portfolio, I do not have sufficient results to prove it.

Over these 3 periods, it can be seen that whilst the NCAV portfolio does under perform the benchmark 33.3% of the time, the cumulative results still outstrips it.

Credits are given to Jae Jun of Old School Value for conducting the backtesting of a NCAV strategy.

Leave a Comment