The title is a little tongue-in-cheek, but what if you could put together your own Mutual Fund populated with Ben Graham “Bargain Issues”. If Graham himself managed a mutual fund, this might be exactly what he would do. With the recent market plunge at the beginning of 2009, several followers of The Graham Investor emailed to say they were buying many of the bargain issues with great success on the Graham Number NCAV screen. One follower mentioned several 150% gains in the ensuing two-month interval since the low in March 2009.
As this is the first real bear market since the screen was originally started, it ought to be — and is — throwing up plenty of selections. Curious about the performance, I decided to check the logs for a screen near the low around 10 March 2009, and determine what a Mutual Fund of a bunch of stocks selected based on this screen might have done.
We have a record of the weekly screen of March 8th. I compared the prices of all 310 stocks on this screen to the prices as at the close on 05/14/09, only two months later. Please see the attached spreadsheet, I’m sure you’ll find it very interesting, especially the gains in only 2 months.
Some of you may be thinking you’ve missed the boat. I beg to differ. The market may yet drop again. It may be worth following some of the biggest % gainers on the spreadsheet and buying those on a market drop, since these would appear to be the stocks with the highest relative strength and momentum when the market is on the way up, and it is bound to go up again, ultimately even higher than where we’re at now.
It might be a profitable idea to create a “Graham Mutual Fund” of, say, the top 20-30 of these stocks using a low-cost broker and invest as the market drops. The best way to do this would be by using a broker like Sharebuilder or Foliofn, where you can create your own “mutual fund” so to speak, and invest automatically on a weekly or monthly basis for a flat fee. Just be aware of costs/fees relative to amount invested; I try to keep them around 2% but not more than 4%. Consider this to be your “mutual fund” expense ratio.
Another thing to be aware of is the very wide spreads on some of these stocks. Look for stocks with tight spreads between bid and ask prices so you do not have a large immediate loss to overcome. Also look for decent average volume.
I note there are a few Homebuilders on the screen such as D.R. Horton, Hovnanian and Beazer Homes; these will likely do well with a recovery in the housing market.
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Excellent site for Graham-junkies like me ! I bought a number of securities at Mar-lows from your Graham Screener and it paid of beyond my wildest expectations…Your site is helping little guys like me to finally compete (and beat) the big boys…Thanks a lot !
Good read. Value investing wins.