Has This Value Strategy Performed?

11 months ago on 29 March 2013, I wrote about how three shares – AEM Holdings (SGX: A10), DMX Technologies (SGX: 5CH), and Pan Hong Property Group (SGX: P36) – were selling at very cheap prices in relation to their asset values; those three companies had market capitalisations lower than their net-net value.

Finding the net-net value of a share was an investment technique that Benjamin Graham (the intellectual founder of the value investing philosophy) had used very successfully in his investment career running his own hedge fund from the 1930s to 50s.

It’s given in a simple formula:

Net-net value = Current Assets  – Total Liabilities

Since it has been 11 months since I last checked back on those three shares, I thought it’ll be interesting to see if the net-net value strategy has worked out for them, given how successful Graham was in his investing career. As it turns out, all three shares had lost to the market as represented by the Straits Times Index (SGX: ^STI) even though the index had declined in the period as well.


29 March 2013

27 Feb 2014

% Change

AEM Holdings




DMX Technologies




Pan Hong Property




Straits Times Index




Source: S&P Capital IQ

Of course, an 11 month period for evaluation for those three shares is a tad short. But, here’s something important to consider as well: The longer an investor tries to hold on to such shares, the greater the risks he’s taking.

Graham’s strategy works on the principle that a share selling at such low prices (bearing in in mind that a company selling below its net-net value is actually worth more dead than alive) could see its price spike up when the market eventually reflects its underlying asset or business values in some way or another. And, the greater the gap between a share’s market price and net-net value, the greater the potential for outsized gains – or so the theory goes.

In reality, companies selling for below their net-net values often find themselves in difficult circumstances, such that their asset values can change in a fairly short amount of time. This can quickly narrow the gap between their market price and net-net values and by extension, lower the attractiveness of the share’s investment merits.

For instance, AEM Holdings had a net-net value of S$50 million and a market capitalisation of S$40 million back in 29 March 2013. Today, its net-net value has shrunk to S$24.5 million while its market capitalisation is now S$34 million. It’s no longer the bargain issue that it was, despite a falling price.

Foolish Bottom Line

All told, this is just a fun exercise on my part to see how these shares would end up performing after I wrote about them 11 months ago. As we’ve seen, the shares haven’t exactly been able to make any gains, much less outperform the market.

That said, this is by no means a criticism of Graham’s technique. After all, Graham likely held hundreds of different shares selling below their net-net values at any one point in time. He knew that buying just a handful of such shares would present great risks to his portfolio as these are businesses that can be facing some really challenging times.

This brings me to a final thought. It can often be enticing to look for shares that are statistically cheap (such as a low price in relation to net-net value) and bet heavily on just a handful of them for the out-sized potential-returns they seem to have. But, that can be risky and sometimes backfire, as we’ve observed so far with AEM Holdings, DMX Technologies, and Pan Hong Property Group. It pays to bear that in mind.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.