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Computerized Investing > February 2010

Benjamin Graham's Net Current Asset Value Approach

PRINT | | | | COMMENTS (3) | A A   Reset

by Wayne A. Thorp, CFA

Outside of Warren Buffett, perhaps no other investor is as well-known as his mentor Benjamin Graham. Considered by most to be the father of value investing and often credited as the creator of the stock analyst profession, Graham’s value-oriented investing methodologies have been the topic of countless articles and academic studies. In fact, AAII tracks three different Graham methodologies at the Stock Screens area of AAII.com. However, his original stock selection approach has not garnered the same attention as his later concepts.

Graham developed and tested the net current asset value (NCAV) approach between 1930 and 1932. According to private investing firm Tweedy, Browne Company: “The net current asset value approach is the oldest approach to investment in groups of securities with common selection characteristics of which we are aware.” Graham reported that the average return, over a 30-year period, on diversified portfolios of net current asset stocks was about 20%. An outside study showed that from 1970 to 1983, an investor could have earned an average return of 29.4% by purchasing stocks that fulfilled Graham’s requirement and holding them for one year.

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Discussion

Robert from AZ posted over 3 years ago:

There is a reason why a penny stock is valued at that. I have never felt comfortable buying them and probably will not now. I like the methodology if I can put to use otherwise. With Buffets cash volume he can't deal in those kinds of companies, and besides he would not buy a few shares---he just buys the whole company.


Robert from AZ posted over 3 years ago:

There is a reason why a penny stock is valued at that. I have never felt comfortable buying them and probably will not now. I like the methodology if I can put to use otherwise. With Buffets cash volume he can't deal in those kinds of companies, and besides he would not buy a few shares---he just buys the whole company.


Brooks from TN posted over 2 years ago:

I would love to see this as a AAII sreening tool!


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