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Strategies & Market Trends : Value Investing
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From: WogofWallStreet10/21/2017 10:46:53 AM
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NCAV and the fundamental analysis:


In the book The Intelligent Investor by Benjamin Graham in the chapter titled Stocks for the Enterprising Investor, there is mention of "Is there a single criteria for picking stocks?" to which there are 2.


1. Buying the 10 lowest multipliers on the DJIA list and holding them for around 3 years. In the book there are results tables that show that the lower multiplier stocks have greater returns over the stock market and the top 10 DJIA multipliers. Why was this the case? Benjamin Graham talks about this by stating that Mr. Market has his periods where he acts irrationally and using this to buy great companies at sensible/cheap prices. The lowest 10 multiplier companies can be viewed as Unpopular Large Companies (UPLC). UPLC's have the resources in capital and brain power to overcome what has caused them to end up in this position whether it be lower than expected earnings, problem with management, law suits etc. This single criteria proved successful until the 1968-1970 period where the UPLC's did not perform as expected.

2. Shares Trading for less than their NCAV: This criteria in the book has had no such bad mark against it. These shares can be considered bargains if they're trading at 67% of their NCAVPS (Net Current Asset Value Per Share). Find them, Buy them, Hold them. Minimum you should hold these shares is at least 1 year. Until a 50% gain is realised but no longer than 2 years.

However what concerns me, and what I'd like some help on, is that just because a companies stock is trading below the NCAVPS should it be considered an investment opportunity? Surely there needs to be more than that, more fundamental analysis. Should you also look for strong financial strength, positive cash flow, no deficit in earnings too?
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