NCAV Method

Dear,

I am a new user.

I would like to ask why the
NCAV criterion is considered the least reliable one. I thought it was the surest one from the moment we do not consider any multiples and we buy stocks at a real discount.

Kind Regards,

Simari

Submitted by gns. Created on Friday 15th November 2013. Updated on Wednesday 6th March 2019.

Submitted by GrahamValue on Thursday 28th November 2013

The NCAV method of investing - also called the Net-Net method - is quite popular even today.

This is what Graham had to say about validity of the method over a period of almost 50 years:
"It always seemed, and still seems, ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the applicable net current assets alone—after deducting all prior claims, and counting as zero the fixed and other assets— the results should be quite satisfactory. They were so, in our experience, for more than 30 years—say, between 1923 and 1957— excluding a time of real trial in 1930–1932. Has this approach any relevance at the beginning of 1971? Our answer would be a qualified “yes.”"

Serenity follows Graham's methods faithfully.
Please do your own research before making an investment decision, especially on whether Graham's methods are suitable for you.

Submitted by gns on Thursday 28th November 2013

Thanks,

2 more questions please.

Using net current assets in the NCAV method I count “Accounts & Notes Receivable” and “Inventories” too.
They could be not so valuable, I mean some note will be not paid, inventories not able to be sold easily or at the price accounted.
Do you think is that a limit of the methodology?

Besides, what about foreigners company that are quoted in U.s.a. but they operates in other country? I mean, companies with ADR suffix.
Should we consider them or not?

Kind Regards,

G. Simari

Submitted by GrahamValue on Thursday 28th November 2013

The answers to your questions are given below.

1. As far as is known, Graham does not appear to specify any differentiation between the various types of current assets.
This could possibly be because the fixed assets unaccounted for in the NCAV method would more than compensate for any shortcomings in the current assets.

2. As far as is known, Graham does not appear to specify any separate criteria for foreign companies.
However, he did warn against investing in foreign bonds.

If you find any additional information on these topics during the course of your research, kindly do share it on Serenity

Submitted by Simari on Friday 31st January 2014

Hi there,

I would like to ask you if we have to consider foreign stocks in the NCAV method or it's better not to do it because data are not reliable as those one for companies that filing with Sec documents as 10K for example.

Thanks,

Regards.

Submitted by GrahamValue on Friday 31st January 2014

Serenity's recommendation for foreign NCAV stocks is the same as that for American stocks - NCAV stocks require more diversification than Defensive or Enterprising stocks.
Since the NCAV method relies on fewer values and fewer historical checks, their numbers are more prone to manipulation.

Submitted by GrahamValue on Thursday 11th April 2019

Dear Simari,

Serenity now evaluates 70,000+ stocks across the US, UK, Europe, Canada, NZ and Australia using Graham's complete 17-rule investment framework.