WordlyInvest. Many thanks for this - The author looked at various academic studies ,including some which I referred to, which claimed the net net strategy greatly outperformed the market. He was sceptical about their claims to have beaten the market by such a wide margin. He wanted to see if these returns are achievable in practice. his conclusion is they are not.
This is his conclusion:
"Indeed, great investors such as Buffett, Schloss, Cundill and, of course, Graham himself advocated for the purchase of securities trading below a conservative liquidation value. However, our analysis of the sample of research identified demonstrates that the performance capability of such a strategy remains largely unknown from a practitioner’s standpoint.
While our analysis focussed on the evidence concerning firms trading below NCAV and found it wanting, its implications resonate much further. For “evidence-based investors” it ought to evoke the questions, “How well do I understand the evidence on which I base my capital allocation decisions?”, “Can the returns reported in that evidence actually be translated into investment reality?”.
Being an evidenced-based investor sounds intelligent, understanding the evidence is being an intelligent investor."
Net-net investing is the process of buying a company’s common
shares below a conservative estimate of the firm’s per-share
liquidation value. Assessing a company’s liquidation value in a
conservative manner and then buying its common stock at or below
that value is the essence of net-net invest -Ewen Bleaker
“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. - Ben Graham
Gaurang Merani of Global Investing Insight did a great analysis on net-nets returns. https://alphaarchitect.com/2021/01/26/ben-grahams-net-current-asset-value-net-net-strategy/
WordlyInvest. Many thanks for this - The author looked at various academic studies ,including some which I referred to, which claimed the net net strategy greatly outperformed the market. He was sceptical about their claims to have beaten the market by such a wide margin. He wanted to see if these returns are achievable in practice. his conclusion is they are not.
This is his conclusion:
"Indeed, great investors such as Buffett, Schloss, Cundill and, of course, Graham himself advocated for the purchase of securities trading below a conservative liquidation value. However, our analysis of the sample of research identified demonstrates that the performance capability of such a strategy remains largely unknown from a practitioner’s standpoint.
While our analysis focussed on the evidence concerning firms trading below NCAV and found it wanting, its implications resonate much further. For “evidence-based investors” it ought to evoke the questions, “How well do I understand the evidence on which I base my capital allocation decisions?”, “Can the returns reported in that evidence actually be translated into investment reality?”.
Being an evidenced-based investor sounds intelligent, understanding the evidence is being an intelligent investor."
Yup. In my personal case, I've been lucky with some deep value situations (not necessarily net-nets) that have beaten the market.
Thanks
Buffett writes in his
‘Berkshire Hathaway 2014 Annual Shareholder Letter’:
“My cigar-butt strategy worked very well while I was
managing small sums. Indeed, the many dozens of free puffs
I obtained in the 1950s made that decade by far the best of
my life for both relative and absolute investment
performance. Most of my gains in those early years ... came
from investments in mediocre companies that traded at
bargain prices. Ben Graham had taught me that technique,
and it worked. But a major weakness in this approach
gradually became apparent: Cigar-butt investing was scalable
only to a point. With large sums, it would never work well.”