Ben Graham’s “net asset value” (NAV) criterion calls for buying securities whose prices are below the value of the net current assets of the company. Portfolios formed from such NAV securities had higher mean returns than the market benchmarks over the 1970–83 period. Furthermore, the 13-year risk-adjusted returns of the NAV portfolios were significantly greater than those of the benchmarks. Although individual NAV portfolio performances over 30-month holding periods were widely variable, these portfolios, too, outperformed the market.
NAV portfolios consisting of the securities of companies that had positive earnings but did not pay dividends had higher mean and risk-adjusted returns than the NAV portfolios of companies with positive earnings that did pay dividends. In addition, portfolios of securities that were the most undervalued (as measured by purchase price as a percentage of net asset value) tended to outperform the benchmarks by the widest margins. During the period examined, the net asset value criterion allowed investors to achieve above-market returns.
