Throwback Thursday: A Look Back on the Bargain Basement Portfolio

image (11)Back in 2009 at the depths of the bear market, we created the Bargain Basement Portfolio, a mock portfolio that sought to invest in companies trading below their Net Working Capital.  Net working capital is calculated as current assets minus current liabilities, divided by the outstanding shares.  To find the companies, we utilized Value Line’s Bargain Basement screen.  To review, here are some of the rules of the portfolio:

  1. Using the Value Line Bargain Basement Screen, select companies that are priced at 75% or lower of Price-to-”Net” Working Capital and have achieved a positive EPS for at least 5 straight years.
  2. Buy shares when the price is 75% or lower, and hold until the price is 150% or higher of “Net” Working Capital.
  3. Maximum number of companies invested at a given time is 5 (target allocation of 20% of portfolio).  If there are more than 5 suitable companies, any purchases will be made in the company with the lowest Price-to-”Net” Working Capital ratio.
  4. Any funds not invested in suitable companies will be invested in the iShares Barclays 10-20 yr Treasury ETF, ticker symbol TLH.
  5. Any dividends received are placed in cash to be reinvested during rebalancing.
  6. Portfolio is rebalanced to target allocations every 3 months.

Unfortunately, this portfolio become a casualty of my other time commitments when I attended law school, so we cannot be sure exactly how it would have worked out.  However, we can look to see how the companies did in the time since the last post on the portfolio from October 2009.  At that time, the company was invested about 20% in both Movado Group (MOV) and PC Connection (PCCC) with the remaining 60% in the treasury bond fund.  Without keeping up with rebalancing, investing in new companies that have become suitable for the portfolio, or accounting for dividends, the portfolio is currently worth over $350,000.  Since we started with $100,000, that is about a 250% gain on the investment.  For comparison, the Dow Jones Industrial Average has gone from 7,776 to 16,573, a gain of 113% and the S&P 500 has gone from 816 to 1891, a gain of 132%.

Portfolio Today

Name Ticker Shares Cost Basis Current Price Market Value Pct of Portfolio Gain/Loss
iShares 10-20 Yr Treasury ETF TLH 930 $104,147.04 $124.86 $116,119.80 32.80% 11.50%
Movado Group, Inc. MOV 2423 $18,287.30 $45.70 $110,731.10 31.27% 505.51%
PC Connection PCCC 6032 $27,259.65 $21.09 $127,214.88 35.93% 366.68%
Cash 2.91 0.00%
Total $354,068.69 254.07%

Treasury Fund’s Performance Since 10/2009

TLH Chart

TLH data by YCharts

Movado Group’s Performance Since 10/2009

MOV Chart

MOV data by YCharts

PC Connection’s Performance Since 10/2009

PCCC Chart

PCCC data by YCharts

Going Forward

I’ve checked the Value Line Bargain Basement Screen a few times in the last couple of months, and at this time there are not any companies that are trading anywhere near qualifying for this portfolio.  In addition, since Net Current Asset Value (NCAV) is more synonymous with Benjamin Graham, I intend to one day have a new mock portfolio based on Companies Trading Close to NCAV, which is one of the screens in ModernGraham Stocks & Screens.  At this point, none of the 217 companies in the ModernGraham database are trading below NCAV (the closest is National Presto Industries, which is trading around 275% of NCAV), but the mock portfolio will be created as soon as there are companies in the database that qualify.


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