Testing Benjamin Graham’s net current asset value model


  • Chongsoo An Department of Economics, Gangneung-Wonju National University, Korea.
  • John J. Cheh George W. Daverio School of Accountancy, The University of Akron, U.S.A
  • Il-woon Kim George W. Daverio School of Accountancy, The University of Akron, U.S.A




Benjamin Graham, Value investing, Net current asset value.


The objective of this paper is to empirically test one of Graham’s investment methods based on the net current asset value (NCAV). The NCAV is truly unique, and conservative, and commonly known as the net-net method.  The ratio of the net current asset value to market value (NCAV/MV) was employed in this study to test a stock’s performance comparing to the performance of S&P 500 as the market index. We used all stocks in Portfolio123 whose raw data were supplied by Compustat, Standard & Poors, Capital IQ, and Reuters for the period of January 2, 1999 to August 31, 2012. The overall results show that the firms with high net current asset values outperform the market. These results are strong in the up market. It can be argued that the firms with a high NCAV/MV ratio are likely to move toward their fundamental value and generate high excess return because its stock prices are now undervalued. The implications of the study are: (a) a positive NCAV/MV ratio may be a good indicator of the underpriced security; (b) investing in the growth period and avoiding the downturn period leads investors to earn much higher returns from the firms with a high NCAV/MV ratio; and (c) The NCAV/MV strategy requires a longer holding period of the portfolio in order to generate excess returns.


Basu, S. 1977. Investment performance of common stocks in relation to their price-earnings ratios: a test of the efficient market hypothesis. The Journal of Finance, 32(1): 663-682.

Bildersee, J., Cheh, J., Zutshi, A. 1993. The performance of Japanese common stocks in relation to their net current asset values. Japan and the World Economy, 5: 197-215.

Board of Governors of the Federal Reserve System. 1998. Section 2 of Monetary Policy Report to the Congress Pursuant to the Full Employment and Balanced Growth Act of 1978 (February 24, 1998).

Cheh, J., Kim, D., Zheng, G. 2008. Investing in growth stocks vs. value stocks: Does trading frequency matter? The Journal of Investing, 17(2): 75-92.

Domash, H. 2013. Harry Domash’s Winning Investing.com. Accessed from http://www.winninginvesting.com/net_asset_value.htm

Fisch, Jill E., Wilkinson‐Ryan, Tess. 2014. Why do retail investors make costly mistakes? An experiment on mutual fund choice, vol. 162.. University of Pennsylvania Law Review. ECGI - Law working paper No. 220, U of Penn, Institute for Law & Econ Research Paper No. 12-24. Accessed online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2086766.

Frazzini, Andrea, Lamont, Owen A. 2008. Dumb money: mutual fund flows and the cross-section of stock returns, Journal of Financial Economics, 88 (2008): 299-322.

Graham, B. 1973. The Intelligent Investor: A Book of Practical Counsel. New York: Harper & Row.

Graham, B., Dodd, D. 1934. Security Analysis. New York: McGraw-Hill.

Greenblatt, J. 1999. You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. Simon & Schuster.

Laugterbach, B., Vu, J. 1993. Ben Graham’s Net Current Asset Value Rule Revisited: The Size-Adjusted Returns. Quarterly Journal of Business and Economics, 32(1): 82-108.

Library of Congress, Federal Research Division. 2011. Financial literacy among retail investors in the United States (H.R. 4173; Dec. 30, 2011).

Lundholm, R., and Sloan, R. 2012. Equity Valuation and Analysis w/eVal. McGraw-Hill/Irwin.

Oppenheimer H. 1986. Ben Graham’s Net Current Asset Values: A Performance Update. Financial Analysts Journal, 42(6): 40-47.

Thorp, W. 2010. Benjamin Graham's Net Current Asset Value Approach. Computerized Investing. (February 2010). http://www.aaii.com/computerized-investing/article/benjamin-graham-s-net-current-asset-value-approach?forceFull.

Whitman, M. J., Diz, F. 2009. Distress Investing: Principles and Techniques. John Wiley & Sons, Inc.

Whitman, M. J., Diz, F. 2013. Modern Security Analysis: Understanding Wall Street Fundamentals. John Wiley & Sons, Inc.

Yardeni, E., Amalia, Q. 2002. Asset Valuation & Allocation Models. New York: Prudential Financial Research (July 30, 2002).

Ying, X., Arnold, G. 2007. Testing Benjamin Graham’s Net Current Asset Value Strategy in London. Salford Business School Working Paper Series: Paper no. 109/07. Accessed in January, 2013: http://www.bengrahaminvesting.ca/Research/Papers/Arnold/Testing_Benjamin_Graham's_Net_Current_Asset_Value_Strategy_in_London.pdf.