My testing was pretty simple, I put all of the quotes and data into a giant spreadsheet and I typed in each ticker one by one into FT.com. I used the FT.com 1yr return as my return statistic, I have no idea how accurate this is, but in looking at the data I have a feeling it's generally more right than wrong.
For stocks that I could no longer get a quote I left them blank, and left them out of the average calculations. I recognize that this could skew the results some. Some of these companies have been acquired, but the potential also exists that others have gone out of business. I did some googling on a few of them and the ones I looked up fell roughly into the two buckets (bought out, failed) equally. I didn't want to spend more time on this but if anyone is interested in backfilling this data I'd be interested in the refined set.
I am not an Excel guru so I've uploaded my spreadsheet to Google Docs and attached a link at the bottom of this post. If anyone is so inclined I would love to know any fun facts from readers slicing and dicing the data. Also if anyone has the returns for the missing companies I'd love to see that as well.
As I was entering the numbers I had a feeling that the net-net strategy had failed over the past year, as most of the returns I entered were negative. Consider out of the 214 that started 2011 only 30 had a positive return. Overall an equal weighted portfolio would have just about broken even although poor it trounced a global ex-US benchmark. The problem is that since so much outperformance came from such a small set of stocks it's likely an investor would have emotionally sold out after Comwest a $55,000 market cap company quadrupled, although at that point it still almost doubled again.
Here are a few general observations:
- Canada has the best returns due to a few tiny speculative companies. Building a position would have required purchasing most of the shares outstanding meaning these returns are mostly unachievable.
- Germany had a 11% gain which seemed attainable by an average investor.
- Only 21 companies had a return greater than 10%.
- Buying only FCF positive or dividend paying firms resulting in a loss but still beat the benchmark.
- Firms with a greater than 1m (in own currency) market cap returned -13.44%.
- Firms with a smaller than 1m (in own currency) market cap returned 58%.
- All of these returns assume a hedged portfolio.
- Forty companies lost 50% or greater with a number of total losses.
- The UK had the most "missing" companies. I hope this is because the UK is more shareholder friendly and management worked to merge or take companies private.
Often I'll come across a blog post, or an article on the internet where the author posits that buying any company below NCAV is a good investment decision. The data supports that conclusion if the investor buys ALL stocks selling below NCAV since the outperformance came from a very small set. If someone were to just buy a random set of stocks below NCAV it's likely they would have performed close to the benchmark at best.
Looking through the list and then looking at my own portfolio led me to the conclusion that NCAV is a great starting point but further work needs to be done. I say this because my own net-net portfolio performed quite well this past year, out of the 13 net-net's I own/owned only one is negative (Titon Holdings) all the rest are positive. The reason for my good fortune isn't that I happened to buy a lucky handful of net-net's but rather that I looked through a lot and discarded them rather then buying anything, I ensured I had a valid margin of safety and that the business wasn't impaired.
This was a fun exercise, I still plan on hunting through net-net land, but as I mention above it's only a starting point.
Talk to Nate about net-net performance
Link to the spreadsheet (click File->Download Original)
Disclosure: Long 7466, 9814, 9932, ARGO, HYI, TON, VIN