HEY! NO RUNNING AWAY. SIT YOUR ASS BACK DOWN IN THAT CHAIR AND READ THIS, MISTER. Think of it as the broccoli you have to eat before you do to a more interesting blog for dessert. Everybody likes broccoli, right?
Back in May, I embarked on a little project. I found 21 companies that have share prices that are less than the company’s cash level on their balance sheet. That means an investor is getting the company for free. Sometimes said company isn’t worth much, but other times it may be in the midst of a turnaround. Or maybe it’s preparing to pay out some of that cash in a special dividend.
The point behind the index was simple. Find companies that are unloved to the point where the market thinks the business is worth less than zero. The companies would have major warts, but that was the whole point. And then, without doing a minute of research, just blindly buy them all and see what happens. After three months, here are the results.
As is the nature of these stocks, there were some huge winners and huge losers, but share prices did go mostly in the right direction. The index beat the S&P 500 but lost out to the small cap Russell 2000 by a couple percent. So overall I’d rank the exercise a good solid B+.
That’s about it kids. I think at the 6 month mark I’ll do some research and pick a handful of stocks that I think are poised to outperform the rest. I’ll also run a new screen, since some of these stocks are trading at much higher than cash levels. I still maintain my stance that this will beat the market over time. It’s just gonna take a while to figure it out. So stay tuned. Or get bored and leave, see if I care. Just as long as you come back.