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. Â Net working capital is calculated as current assets minus current liabilities, divided by the outstanding shares. Â To find the companies, we utilized Value Line’s Bargain Basement screen. Â To review, here are some of the rules of the portfolio:
- Using the Value Line Bargain Basement Screen, select companies that are priced at 75% or lower of Price-to-â€Netâ€ Working Capital and have achieved a positive EPS for at least 5 straight years.
- Buy shares when the price is 75% or lower, and hold until the price is 150% or higher of â€œNetâ€ Working Capital.
- Maximum number of companies invested at a given time is 5 (target allocation of 20% of portfolio).Â If there are more than 5 suitable companies, any purchases will be made in the company with the lowest Price-to-â€Netâ€ Working Capital ratio.
- Any funds not invested in suitable companies will be invested in the iShares Barclays 10-20 yr Treasury ETF, ticker symbol TLH.
- Any dividends received are placed in cash to be reinvested during rebalancing.
- 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. Â However, we can look to see how the companies did in the time since the last post on the portfolio from October 2009. Â 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. Â 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. Â Since we started with $100,000, that is about a 250% gain on the investment. Â 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%.
|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%|
Treasury Fund’s Performance Since 10/2009
Movado Group’s Performance Since 10/2009
PC Connection’s Performance Since 10/2009
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. Â 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. Â 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.