Slight Changes to NCAV Screens

by The Graham Investor on February 6, 2010

Since quite a few people requested it, and there were many questions such as “Why isn’t XXX showing up on the NCAV screen?” I have decided to remove the criterion of positive Operating Cash Flow. This will probably lead to more stocks showing up on the screen. OCF will still be displayed and you can sort by that column. Part of the reason for removing OCF is because it was sometimes left out altogether in the data; so a stock which otherwise should have been on the screen by virtue of NCAV may have been left out as a result even though its OCF might actually have been positive.

The only criterion in effect is now a cut off where a stock’s price is at 130% of its NCAV value. This is probably the point where we might begin to feel there is no value in investigating a particular stock further, but it also gives us room to watch any stocks that slowly make their way onto the screens and start drifting down to their NCAV value or below. I hope this change helps make the screen more useful. Currently, we are still using the data that has served us well to date. The plan is to start using another data source and incorporate NCAV screens of foreign stocks also; this should happen in a few months time when a few kinks are worked out.

In the meantime, I should probably take the opportunity to remind users of the NCAV screens to do their due diligence – beware of potential bankruptcies, or stocks that are going through bankruptcy already. Also be mindful of the wide spreads in these low-priced stocks. “Low price” does not necessarily mean “cheap”. The best way to take advantage of this type of screen is to buy many different stocks (Graham himself suggested 30-40 such issues) and spread your risk as much as possible. Good luck!

{ 18 comments… read them below or add one }

1 Jim Allen February 7, 2010 at 6:01 pm

This initial screen must be only the starting point of a decision to risk capital. Anything short of that is a crap shoot. Remember what Warren Buffett counsels, that “risk comes from not knowing what you are doing.”

I wondered where the OCF came from, or what to do with it. There are a good many “cheap” issues that have no positive income this year or last, but still may have investment merit. This is merely a screen to begin the search, not a “stock picker!”

2 The Graham Investor February 7, 2010 at 7:10 pm

Starting point, for sure. Certainly, it’s not meant to be a stock picker any more than Jim Cramer is a stock picker, and never has been. Anyone who has read The Intelligent Investor thoroughly will understand they need to make their own decisions in the end.

3 GrahamGuy February 9, 2010 at 9:16 pm

I agree that you need to look into the asset quality of the stocks presented here, but I dont think Graham ever presented NCAV stocks as an approach that would benefit from deep analysis 0f the individual stocks. He said this about the NCAV strategy in the 70s:

I have a considerable amount of doubt on the question of how successful analysts
can be overall when applying these selectivity approaches. The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy
groups of stocks that meet some simple criterion for being undervalued-regardless of the industry and with very little attention to the individual company.

4 The Graham Investor February 10, 2010 at 9:37 pm

Very good point. My feeling is we have a lot more Information easily and quickly available to us than Graham ever did, and we can use this to quickly check for solvency which doesn’t necessarily have to be deep analysis of the individual stock, rather a  quick once-over to eliminate obvious bankruptcy potential.

5 GrahamGuy February 11, 2010 at 7:19 pm

I agree with that. I think the whole point behind NCAV is that business model and future prospects are nearly irrelavent, but asset quality and hidden liabilities are key. I realize that Buffett was very successful at going beyond that, but come on – Buffett has been reading financial statements, 14 hours a day, for 65 years or so. I understand Jim’s quote about risk, but I think the biggest risk is thinking you are smarter or better than you really are.

I’ve done pretty well by blindly following NCAV, but I’ve gotten burnt a few times by not doing even a really cursory Google search (most recently, I bought SHIP at about 2.00 even though they had an equity offering priced at 1.25 in the works. Duh.)

Anyway, thanks for the fantastic site.

6 michael February 28, 2010 at 10:46 pm

completely agree with ‘the starting point for the search’ as it pays to dig a little deeper.. for example, the screen missed the fact that RCON’s financials are in yuan.. once you convert them over it isnt actually a net net. PRICE NCAVPS (66% of NCAV)
6.55 3.23 2.13

7 The Graham Investor March 1, 2010 at 10:07 am

At the moment everything is assumed to be in USD; we plan to change that when we start incorporating foreign stocks and using a different data source for the screens.

8 Kyle March 3, 2010 at 2:45 pm

I maybe wrong about this, but under the column where it says % Price of 66% NCAV or something, it is telling you what percent the price is of the NCAV, NOT the 66%NCAV. Just thought I might point it out.

9 The Graham Investor March 3, 2010 at 3:46 pm

Kyle, thanks for pointing this out. The column header is not terribly clear I guess – and maybe even misleading – (there’s not much space to describe it properly except in the tooltip), but the column is supposed to show where the last closing price is as a percentage of NCAV, which it is actually doing correctly. If that percentage is less than 66% of NCAV it will show in green.

10 Amit March 24, 2010 at 7:46 pm

Excellent site! I have been running my own NCAV screen the last few months and have done pretty well with some of the picks. It does take some time to sift through all the data so its great you share it here on your site.

11 Kris April 5, 2010 at 5:22 pm

I agree, excellent site. There are a couple issues that can be easily overcome with some research – ie foreign stocks. Oftentimes ADR’s don’t represent shares on a 1 to 1 basis, or the assets and liabilities may be listed in a foreign currency, and this may skew the data. 5 minutes of research should solve this though. I’ve sometimes emailed investor relations of the company in question regarding specific issues in their financial statements so that I could hear the answer right from the source.

12 David April 23, 2010 at 9:36 am

Quick question,

I noticed on the Intrinsic Value screen that the forward P/E of all the stocks was set to 5. Is this intentional or some sort of an error? Thanks. Great site by the way.

13 The Graham Investor April 23, 2010 at 9:41 am

Thanks for lettiing me know; it’s an error for sure! I will fix it. There have been a few upgrades to the server this week and a couple of things have gone awry.

Update: It is now fixed and the correct P/E values should appear after the next screen refresh on 4/25, if not before.

14 rob lane May 28, 2010 at 10:13 pm

John Reece of Validea wrote a column in this weeks Forbes.the article featured the methods of Joseph Pietroski.However on the Validea screen performance,the Pietroski screen was 4th out of five at approximately 33% since 03.The Graham screen was the leader at over 130%.Does this sound right to you?I would have thought it would have been much closer.
Rob Lane,SF,CA

15 The Graham Investor May 31, 2010 at 8:38 am

Rob: Is that 33% overall since 03 or a 33% average annualized return since 03?

16 Tenentka February 14, 2011 at 5:01 am

Hi investor friends,

my question is: how often you update the NCAV number. For example: I purchased this month 10 NCAV stocks for 10.000 € (1000€ each position). Let´s take DRF for example (one of my positions) the NCAV Value is about 79 USD. Is this today (01.02.11) still this NCAV value, or is it possible that the number falls to 20 USD/share? Do you update the NCAV after every quarter report?
An another question is: is it possible that a company with <NCAV with positive OCF can go bancrupt? Do You track stocks in the EU? Maybe in the future?
Thx.
Best regards from germany
Thomas Tenentka
P.S. great site and possible only in the US, nowhere else !

17 Tenentka February 18, 2011 at 4:51 am

Hi Investor friends,
first of all I´m sorry for my bad english ;-)
One of my ten purchsed <NCAV positions is the Credit Acceptance Corp. And I´ve recieved from my bank an interesting offer. The management of CACC buy his own shares back and they want give me about 65 USD, but we know that the Value of CCAC is something about 189 USD, and I told them that I don´t want sell my stocks.
Thank You Grahaminvestor for such a great site, really!
Best Regards from Germany & Poland ;-)

18 Jim Allen April 19, 2011 at 10:39 pm

Here is a good reason to look into these companies and not just follow the screen blindly. HQ Sustainable Maritime’s auditor recently resigned amid concerns the company’s management has been perpetrating a fraud upon investors. Trading in the shares of the company has been halted. HQS has failed to file its 10-K for more than a month after it was due. I don’t know if you could have foretold this by looking or not, but it does highlight the advisability of being cautious. There are others that are shown as meeting NCAV criteria but when you peruse the Q’s and K’s, for one reason or another they are actually not.

As Ronald Reagan used to say, in a completely different context, “Trust, but verify!”

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