Are NCAV Screeners Really Worth It?
This article on NCAV screeners was written by Jialin Chua. Jialin is a corporate finance and a capital markets consultant in Singapore. She uses Net Net Hunter's high performance net net checklist to identify her stocks. Download our net net checklist right now for free. Click Here. Article image (Creative Commons) by Christoph Scholz, edited by Net Net Hunter.
How much time do you take to find a quality stock trading below Net Current Asset Value (NCAV)? Do you use an NCAV screener to find the highest quality net net stocks? If not, you may miss out on some of the best bargains on the market.
Benjamin Graham: Net Current Asset Value (NCAV) Stocks
One of Benjamin Graham’s favourite measures of value was net current assets per share, or NCAV.
NCAV starts off with the computation of all current assets on a company’s balance sheet that can be sold in a relatively short period, such as the cash, inventory, and receivables from customers. For everything the company owed, this is subtracted from the current assets. If it is a positive number, it is divided by the number of shares outstanding to come up with the net current assets per share.
In the olden days, one had to sift through the monthly Standard & Poor’s Directory of Corporations page by page and do their calculation manually. Graham would then buy those stocks that were selling for two-thirds or less of net current assets.
NCAV is a straightforward calculation to determine the value of the company. However, doing a manual calculation on over 40,000 public companies worldwide is drudge work of the highest order. It is practically impossible to investigate each one. Only a superman version of Howard Berg’s speed reading tactics could get through all the annual reports.
Treasure Hunt: NCAV Stocks
Hence, finding cheap NCAV stocks is akin to a treasure hunt – a time-consuming and tedious task. Investors have to sift through lots of financial data to find the gems that will be good enough for investments. This is similar to the miners in the days when had have to sift through a lot of dirt and rock to find the precious metal that made them wealthy.
Miners use picks, shovels, and pans as their tools of the trade. For investors like us, we need similar tools to aid us in filling the shelves of our value investing store with appropriate goods.
Investor’s Tool: NCAV Screener
This is where an NCAV screener comes into play. As technology advances, we can now utilise this tool to accomplish in minutes of what used to take days and weeks. An NCAV screener that pre-screens lists of stocks in the stock market that appear of value is like a supermarket that sends out sales flyers every week to let you know what is on sale.
An NCAV screener aids us in sorting through the universe of thousands of stocks listed around the world according to our set of criteria. With just a few clicks, you can obtain lists of all the stocks that possess one or more of any criteria you choose. With another click of a button, you can sort them from high to low depending on which criterion you think is the most important. You can even mix and match these criteria, and within seconds, all the lists of possible candidates for your investment store will be shown on your computer screen.
International NCAV Stocks
However, most of us constrain ourselves to investing only in the U.S. stock markets. This is because the U.S. stock market has the biggest market capitalization of $34 trillion, compared to the rest of the world's $44 trillion capitalization. Putting this into perspective, the U.S. stock market is at 43% of world market value, even though it houses only 17% of the world's stocks.
Furthermore, in terms of trust and confidence level, most believe that the Securities and Exchange Commission (SEC) is able to regulate away a majority of abuses and shenanigans perpetrated by stock market manipulators. U.S. accounting standards also create a level playing field for research and analysis. Hence, when it comes to investing abroad, many are stuck in the mentality that it is a minefield of deception and are typically skeptical about foreign accounting standards and whether they are adequately transparent.
In a world of globalisation and ease of trade, a global approach is yet another way to find candidates for your store of values. It seems foolish to limit our investments to just your home country or the country with the biggest market capitalization. Opening up to international investing will enable you to double the potential opportunities to stock the shelves of your value investing store with stocks below NCAV, or even companies selling below net cash balance. We have to put ourselves in a position that we can benefit from cheaper markets and companies.
No matter what time frame you examine or even what country you choose to explore, buying stocks that sell cheaply when compared with their asset value works. Therefore, we need to use a NCAV screener that has the best ability to screen financial databases from all over the world and find clues to hidden value.
Is an NCAV Stock Screener Enough?
There are over 1,000 statistical international net net stocks available today. Even with an NCAV screener, screening for stocks that seem cheap on the surface is only the starting point, not an end goal. The stocks are cheap for a reason and may have fundamental problems. The stock names that appear on the NCAV screener are just a list of possible candidates for the shelves of our wealth-building store.
Maintaining a margin of safety is one of the core principles of wealth building through value investing. Purely using a typical NCAV screener alone does not help investors to concentrate on the best picks. Blindly buying the screen results could well end in investment disaster. The usual NCAV screener only points us in the direction of potentially cheap stocks and reduces the number of companies we need to study with greater care.
We still need to inspect the merchandise to make sure we are being offered quality goods at low prices and not scruffy, obsolete articles that are despairingly overpriced even while appearing to be cheap. We will then use various yardsticks and drill down into the fundamentals of these companies to find quality cheap NCAV stocks.
NCAV Stock Screener: Net Net Hunter
Most of the returns attributed to a net net portfolio come from a small number of the portfolio's stocks. Missing the top picks will result in lower performance, and finding the best picks requires you to comb through the list to identify better-than-average investments. The process of searching through the available stocks can be time-consuming and uneconomical for small investors who have job or school commitments.
Great promising NCAV stock investment candidates are tough to find. At Net Net Hunter, we spend 30 hours each month combing through all of the available net nets globally to highlight the 40 or 50 that provide the best opportunities. The 30 hours we spend doing the homework for you can instead be used for some quality time with your family and friends or other commitments that you have. Think about the opportunity cost to spend that 30 hours for other purposes — time that can’t be gained back.
For a small-time investor, it is best to leverage our shortlist of high-quality net net stocks for the best returns and work more efficiently and effectively.
Using the Net Net Hunter’s screener is the best method for uncovering high-quality net net stocks. You save invaluable time and money by signing up for a full Net Net Hunter membership.Start putting together your high quality, high potential, net net stock strategy. Click here to get free high-quality net net stock picks sent straight to your inbox each month.