Newsletter 1 - The hunt for deep value begins! 13th of October 2014

My first ever ADVFN blog! This is going to be fun.  I thought I’d start by introducing one of my favourite investment approaches, the Net Current Asset Value approach – NCAV for short.

Over the next few weeks my intention is to invest some of my money in half a dozen or so companies that meet the very tough criteria to qualify as a NCAV investment.

I tried to invest earlier in 2014 but could find nothing to satisfy me – you have to be very selective, the real bargains are few and far between.  Then, I got distracted by writing the 3rd edition of the Financial Times Guide to Investing, so I didn’t look for a few months.

However, I did manage to find some good ones in 2013.  The results are displayed in the table.

I think we can call a return of 40% a success.

The game is not over yet:  in order to avoid falling victim to what the behavioural finance experts call the ‘disposition effect’ – the natural tendency of humans to sell winners too soon and hold on to losers – I impose a rule: hold for at least 3 years, preferably 5.

I’ll keep you posted over the next few years on how these ignored and rejected little beauties perform.

By the way, an academic paper I wrote with one of my PhD students, Ying Xiao, also shows that holding a portfolio of NCAV shares for 5 years makes sense – good returns above the market average are available in years 4 and 5.

Next few blogs: I’ll discuss the quantitative criteria, and the results shown in the paper

After that: the qualitative criteria – to do this properly can take a week of analysis
After that: the logic I followed to select the 2013 portfolio constituents, and whether they are still good investments
In between: my recommended picks for the 2014 NCAV portfolio, and why.