Our/My investing journey goes way back to 15 years prior. Fresh out of university and armed with a burning desire to become a great investor, I found myself amidst stacks and stacks of annual reports, poring through the footnotes, trying to discover overlooked factors that many have missed. And then, I ran base, best and worse case scenario based valuations, trying to determine what is a fair price that one should pay for a company with a moat, a competitive advantage so large that earnings, owner earnings, cash flows, free cash flows and dividends could grow predictably over the years to come. Typically, I spend weeks analyzing a company. Now the problem with such intensive research is that it tends to distort decision making. Biases creep in unknowingly as an analyst seeks confirmatory evidence along the way. Each detail adds to the investment thesis. Little did I know then that what I was actually trapped in was what a psychologist would call a “confirmation bias”. The confirmation bias is actually the tendency to search for and favor information that confirms one’s preexisting beliefs. As such, what will happen very simply is errors in decision making. I have to say then as I will say now is that I was enamored with Warren Buffett. But that approach of picking companies did not work out well for me.
What has worked for me is an experience that I will never forget. I often describe this in my books as losing my investing virginity. I made an investment into a company which was a net-net. And that company grew by more than 50% in less than 6 months. And then, I wondered, was that sheer luck or was that skill? I don’t think it was skill because I believe that anyone could have done that but at the same time, I also believe that I was incredibly lucky to be able to see first hand how Ben Graham’s methods work. Along the way, I have found more than a few reasons to stick to this approach.
This approach is the net current asset value approach.
The net current asset value approach does work as proven by many back tests in various markets. There are many reasons why the net current asset value approach still works. These are some of the reasons that I can think of at this point in time. Forgive me if I leave out any.
- There is a tendency for human beings to have a group think mindset. Herd mentality is the norm.
- Investors do not have the fortitude to bet on stocks which look temporarily ugly
- Institutions have no interest in such stocks
- Sell-side analysts will not recommend stocks with small market capitalization.
- Many investors are too hooked on the Warren Buffett Narrative. There will only be Warren Buffet. It is very hard trying to do what he does.
At the same time, I believe that investing should be easy and simple. I believe in 1 foot hurdles that I can step over easily. The net current asset value approach is an example of a 1 foot hurdle for me. And I suspect that it is for many individuals out there who want to invest using Ben Graham’s methods. As an investor, I can vouch for Graham’s methods. They are useful till this present day and workable across different markets. The approach also makes all the sense in the world to me. Let me give you an example of a typicaly net-net stock that Graham would approve of.
Company A is an operating company with a net cash of $20 million on its balance sheet. At the same time, the company was mildly profitable and has an approximate liquidation value of $30 million. The company’s current market capitalization is $20 million. Already, an investor would be able to buy such a company for two-thirds of the approximate liquidation value. Also, at such a price, the company’s mildly profitable business was given away free for the company has a net cash of $20 million, which is equal to the purchase price paid. In my experience, baskets of such stocks actually work out very well. (We have countless real life case studies on such stocks. You can refer to our section on books for this.)
And with this in mind, The Holy Financier was thus set up initially as a blog to share my ideas on deep value investing and also as a library of case studies on net current asset value stocks or net-nets. As a reader, you will get a glimpse of how the net-net approach actually works out. And of course, we also have a premium service where you can actually view lists of net current asset value stocks the world over. Hence, this is what The Holy Financier has on offer:
- Free articles on investing and deep value investing
- Premium articles and updated lists of net current asset value stocks(net-net stocks) the world over
- Actionable research on net current asset value stocks or net-net stocks
- Investment education in bite-sized format
- Forums and community for deep value net current asset value investors
More than anything, many readers I suppose would have read some of our books on deep value investing and the net current asset value strategy. I hope that this library of sorts will serve as a commune to add value, meaningful information and ideas to you as an investor. We truly hope that this will be of benefit to your investing journey. As always, may you and your family be blessed with abundance, health and happiness!