Or NAMBLA for short.
Hey, remember a couple of months ago when we discussed how you can easily beat the market? Since I know you’re not going to click back and read that, let me give you the condensed 411. (411 is what the kids say instead of ‘info’. I know this because I was cool, once, in 1997. That was a glorious day.) All you need to do is buy stocks that are trading at low price to book or price to earnings values, and you will outperform the market. Assuming, of course, you can find a way to buy every undervalued stock.
Us stock pickers can’t do that, and unfortunately there’s no ETF available that just buys stocks with low price to book values. That ETF would be complex and confusing and would make a grown man weep, perhaps a little more than usual if that man was me. So we research, spending time and energy trying to find stocks that are the best of the cheapest, since cheap stocks are usually cheap for a reason.
But forget about that. How about we look at the cheapest of the cheap stocks? So I decided to run a little stock screener, looking for stocks that traded for less than the cash they had on hand. From there, I had to filter further, taking out companies with a bunch of debt, since that kind of goes against the spirit of this exercise.
From there, I took away every Chinese reverse takeover, since nobody wants to wade back into that mess. And that’s it.
I came up with this list on Sunday, so prices will be a little different than listed, but here’s the index, in all it’s glory.
This new index is simple. It takes equal weightings in each stock, and the few that pay dividends are counted towards the total. Every three months, we’ll have a look and see how it’s performing compared to the broad markets. Next May 1st we’ll punt this index and start a new one.
Check out some of the trash on that list. Real Networks? Remember the Real Player, that media player from 1997? Apparently that still exists, and is sitting on a whole bunch of cash. There’s Emerson Radio, one of my entries in the 2013 stock picking contest. There are quite a few biotech companies on there with no revenue. There’s an online stockbroker and something that looks like it makes knock-off Apple products. That is one crap index.
And I think it’ll beat the market.
The logic is simple. A company trading at less than cash means the market values the business at nothing. You can’t get any more pessimistic about a stock than that. The market is just killing time until the business runs out of cash and goes bankrupt. There’s little doubt in my mind that some of the stocks in the index will end up going bankrupt. There will also be some gigantic winners. My thought is the winners will more than make up for the losers.
So let’s find out. Is beating the market as easy as running a stock screener and blindly buying companies trading below their cash level? I don’t know, but let’s try it before I get bored.