Victor Wendl’s book The Net Current Asset Value Approach To Stock Investing was a revelation to me. The book contained nuggets of wisdom regarding the net current asset value approach that are not spoken about very much. And for any investor who wants to take investing seriously, you have to get your hands on his book. It is a pity that few investors actually appreciate what Victor has done with the book.
He basically tore apart the approach and examined the approach from all angles. To me, it truly was a revelation from so many vantage points. Looking at the reviews section on Amazon, I know that his book has not been well received by the investment public in comparison to other books I have seen out there on investing.
This perhaps tells a story on the misconceptions surrounding the net current asset value approach. Some say that net current asset value stocks disappear for long periods of time especially during bull markets. Well, there is truth to that. But the antidote to that is to invest beyond one’s domestic markets.
And then there are those that feel that the approach, while sound, requires a tremendous amount of gumption. Yes don’t we all need gumption and fortitude to go against the grain? Isn’t that to be expected as an investor with good results? After all, investors like Walter Schloss bought companies when the masses were running away from it.
So, I make the argument that in order to have good investing results, one has to be different. What is fascinating to me is that in the stock market, you need many people to disagree with you or you need to disagree with many people in order to be a contrarian. Because being a contrarian means buying when the masses are selling. It also means uncertainty. But, it also means that investors using the net current asset value approach can scoop up bargain priced shares trading at prices less than the liquidation value. Why? The net current asset approach for some reason has not caught on with investors and I see that as a great thing. Despite the academic research and papers published by others, it seems that the approach has not gained in popularity.
If I were to do a poll here, I think I am quite confident that less than 5% of the investing population actually use the net current asset value approach. And even if they use it, they dilute the approach’s effectiveness by combining it with other strategies.
Some feel the need to be intellectually challenged when it comes to investing. As such, they try to figure out a fair price to pay for a company with growth, often times, overpaying for such companies. As a result, investing results become mediocre.
I don’t know about you but I like simple. And I know where I stand with regards to this for now. And if I may say, Victor Wendl has done an amazing job with his book. The only thing that it lacks are real world case studies and that is the reason why I have written 4 such books on the net current asset value approach myself. Because one really has to acquainted with the strategy and get comfortable with it in order to see it through. And the only way in my mind besides blind faith is to read up on as many case studies as possible using the net current asset value approach.
My books can be found at : https://www.amazon.com/Kingsley-Lucas/e/B07DFX9GK9/ref=ntt_dp_epwbk_0
Back to my original intention on writing this little article though. I was flipping through the pages of Victor Wendl’s book when I found on page 19 this table shown below.
What $10,000 Grew To Investing in Stocks with Different Market Capitalization Over 45 years
|Market Cap||Resulting Value|
|Stocks with Market Cap > $1 Billion||$1.6 Million|
|$500 Million< Market Cap < $1 Billion||$1.9 Million|
|$250 Million< Market Cap < $500 Million||$3.4 Million|
|$100 Million< Market Cap < $250 Million||$3.4 Million|
|$25 Million< Market Cap < $100 Million||$7.8 Million|
|Only Stocks with Market Cap < $25 Million||$806 Million|
This table shows the effects of $10,000 being invested in stocks with different market capitalizations over 45 years. Now, did you see that $10000 would grow into $806 million after 45 years. Ignore that for now. Stocks at less than $25 million in market capitalization usually do have some form of liquidity issues.
At the same time, due to the illiquidity, slippage costs can be rather high. Hence, this group of stocks can be quite impractical to purchase.
On the other hand, if you move up the table, you will see than $10,000 grows to $7.8 million in 45 years. And then, that same $10,000 grows to $3.4 million for stocks with market capitalizations between $100 million and $250 million.
Again, another revelation from Victor.
If you want to compound money, focus on stocks between the $25 million to $100 million market capitalization for starters. Then move up from there as your portfolio becomes bigger.
The study above is actually taken from What Works on Wall Street by James O`Shaughnessy. So of course, gratitude to James as well. We are all standing on the shoulders of giants here.
But I think you get the idea here if you have read thus far. I am not going to bore you further. The work has already been done and the path has been paved if you are willing to learn.
And this is the major lesson of this post here.
If you want to compound money, focus on net current asset value stocks that have a market capitalization of between $25 million to $100 million. Of course, look at stocks whose volume allows one to ease in and out of the securities easily.
Another post on that in the future perhaps.
As always, may all be blessed with prosperity, health and happiness!