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Home Value Investing NCAV and Quality – Observation

NCAV and Quality – Observation
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2:02 pm
April 15, 2011


Jae Jun

Admin

posts 1464
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Yes you are very correct. These net asset screens do not perform well in a bull or flat market. Only during a bear market does this screen perform at its best.

In a bull market everything rises and the ones that are left over really are the troublesome ones. In a bear market, you have a lot more to choose from.

11:34 am
April 15, 2011


somrh

Member

posts 336
1

So I'm looking at Jae's graphs for the NCAV and NNWC screens. See here.

The graphs look basically flat from 2003-2007. So my question is "why?". Here's my hypothesis.

During 2000-2002, there is a massive sell-off of stocks. As such, a few higher quality firms end up making the screens. Their value is quickly realized resulting in a huge turn around by 2003. Then from 2003-2007, the only stocks making the screen are basically value traps and may, perhaps, be gradually losing their asset value. So no one becomes interested.

Then from 2007 to the beginning of 2009, we see another massive stock sell off and more higher quality firms show up on the screens. Rinse, lather and repeat.

So perhaps returns for the NCAV/NNWC screens will be roughly flat for a while since, if my hypothesis is correct, the firms showing up now are lower quality firms.
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