How Being Rebellious Can Make You Money

How Being Rebellious Can Increase Your Success In The Stock Market – An Interview with Evan Bleker from Net Net Hunter

Alvin Chow
Alvin Chow

I was very impressed by the quality of the articles written by Net Net Hunter, espousing the Benjamin Graham’s approach to investing. Without a doubt, I knew I had to request for an interview with the man behind Net Net Hunter, Evan Bleker, to benefit myself and you readers!

Evan was generous in his sharing during the interview and has revealed great insights to his investing style.

You will learn the following in this interview:

  • How many stocks should you have in your portfolio?
  • What should a new investor do to learn about value investing?
  • What is ‘Net Net Investing’?
  • What are the characteristics of a ‘Net Net stock’?
  • How to avoid Value Traps?
  • What should you do if your purchased stock drops in price?
  • How often does Evan monitor his stocks and rebalance his portfolio?
  • Why Evan returned to Net Net Investing, after 7 years of testing all other investing strategies?

Evan has been kind to offer his ebook, Retire Young & Rich, worth US$39.99, for BigFatPurse readers when you sign up for Net Net Hunter subscription. Remember to key in the coupon code ‘BIGFATPURSE‘ at the point of purchase and Evan will personally email you the ebook. Valid for one week only.

Here’s a transcript of the interview with Evan Bleker, from Net Net Hunter:

Alvin (BigFatPurse): Hi everyone. Welcome to the BigFatPurse Show. Today we have Evan Bleker from the Net Net Hunter.

I first came across Net Net Hunter through Old School Value, I was reading through the articles and came across an article from Evan. I read it with a lot of interest because it resonated with the style of investing that I do myself.

So I went over to his site and, I was amazed by the amount of content that he actually has. And it’s really very quality stuff and there is not a lot of websites that talk about Benjamin Graham style of investing and it was like a gem in the ocean of a lot of rubbish sites.

So I persuaded my business partners to sign up for Net Net Hunter’s subscriptions and eventually we did so and inside the membership we found even more gems.

Evan talked about stocks, he analysed the Net Net Stocks in detail and it’s not just in a particular country like the US which most sites cover. He also went into UK, Japan all these countries uncovering all these Net Net stocks there.

We are very honoured to have Evan today with us.

And maybe we’ll start a little bit way back in time.

How do you even get started in investing in the first place?

Evan (Net Net Hunter): Well first of all thanks for the intro. I’m going to get you as our website’s spokesperson.

But yeah, just getting to the question, after graduating from high school I fell in love. Actually I was in love with a beautiful Red-Jeep TJ.

But the problem is I didn’t have any money so I couldn’t buy the TJ. So I ended up getting a job.

My uncle got me this job. It was at a local shipyard and it turned out to be just brutal. I spent 40 hours a week, sweeping the shop floor, carrying large pieces of plywood up the shop stairs. And the air in the shop was just filled with fibre glass dust. I don’t know whether you have ever worked with fibre glass but its brutal stuff.

We were in full cover overalls. I had a respiratory but still the fibre glass dust will still get through the respirator through the cover overalls and it’ll just embed into your skin.

Anyways at the end of the year I’ve earned enough money to buy this TJ. And I should have been ecstatic, but I looked at my bank account and I thought back to all the pain and suffering I’ve get through to earn that much money and it’s just wasn’t worth it.

So I knew that I had to put the money to work for me.

Alvin: So you found that work was tough and there’s better way of doing things, right?

And so, how did you get started to learn about investing?

I guess for every beginner, there’re a lot of resources out there but it’s mostly an unguided way of learning.

How do you get to find a way to eventually get into this Net Net investing?

Evan: Well for people just starting out I think you’re right there is a lot of resources and information out there.

Unfortunately I think there’s also a lot of misinformation out there.

Actually I’ve read your site’s mandate and I spent some time on your site a few weeks ago and I’m pretty happy with what you’re trying to do over there.

But for me if I were instructing a new investor, somebody who’s just coming in to investing now, I would basically tell them to learn from the Greats and read as much as possible.

There’re really there’s no substitute and there’s no excuse for not reading the Great Investors: Benjamin Graham, Warren Buffett, Charles Munger, Seth Klarman people like that.

For me you know how I came into investing and I ended up with Net Net stocks strategy but I came to it in a very roundabout way.

When I first started learning about investing I read about something they called the Benjamin Graham’s Net Net Stocks and I was pretty impressed by the returns on offer.

But when I started reading articles, the articles were saying that these stocks are irrelevant to the past, they are just not available and they are not in the markets anymore.

And so that send me off course for about 6-7 years. I fumbled my way through a whole of host of different investing strategies. I had a really rocky time and things were just not clicking for me.

So after about 6-7 years of fumbling through investing, by chance I happened upon a blog that somebody set up and they were actively investing in Net Net Stocks and so you know I thought what is this?

Obviously if this guy is doing it and these stocks are still available which means I can invest in these Net Net stocks. So I just dove head first into it.

Started reading a lot more Graham. I read a lot of the academic and industry white papers that were available on the Net Net Stocks and yeah basically that’s how I got into it.

Alvin: And we also understand that Net Net Stocks are usually involved the ugly stocks – stocks with problems here and there.

How do you get the confidence to even consider buying them? I guess it’s always very hard for investors to do something that is very uncomfortable.

Evan: John Templeton that said “if you want to beat the market then you have to do something that’s different from the crowd.”

A lot of people just don’t have the emotional temperament or emotional intelligence needed to buy these stocks, that’s unfortunate.

But when you’re looking at these companies you’re right a lot of them look terrible.

The typical Net Net Stock is a stock of a company that was humming along doing fairly well until major crisis hit and as a consequence revenue just fell off the cliff.

It’s not uncommon to see these companies drop in the revenue by anywhere 60-80%, that’s very normal.

And the stock price obviously follows. And stock prices, it’s not uncommon to see those crater by 90%.

There are very scary stocks.

But what you have to do is: first of all read the research that’s been done on these stocks, understand how Net Net Stock investing works.

Then just trust people like Benjamin Graham or Warren Buffett, Walter Schloss who all invested in Net Net and just trust that what they were saying about the strategies are actually true.

Alvin: We have been talking about Net Net, using the term profusely.

Could you explain to the viewers what is a Net Net Stock?

What is the particular characteristic of a Net Net Stock?

Evan:  Yeah, sure. I’m going to assume that most people watching this knew what low price book value stock is, so a Net Net Stock is really just a low price book value stock but we totally exclude long term assets.

So in other words we’re just taking the current assets and we’re subtracting all liabilities, all of balance sheet liabilities such as unfunded pension liabilities.

We’re also subtracting the face value of the preferred stocks and where you’ll end up with what we called the net current asset value.

And so the idea is that we are buying below that value so the stock is trading below the net current asset value then we would call that the Net Net Stock.

Alvin: There are people with the belief that cheap stocks can go cheaper and people feared the concept of a value trap.

How do you increase your chances that these Net Net Stocks are unlikely to turn out to be value traps?

Evan: Well you have two concepts there that need to be separated.

First one is stocks going lower, second one is value traps.

I don’t consider a big problem if the stocks go lower after I buy it.

I knew that a lot of people think differently about that but from what I’ve read a lot of the pros like the really gifted investors. I’m referring to the old school Benjamin Graham, Warren Buffett’s style investors, they tend to not really care that the stocks goes lower after they buy it that is because they know that they can’t pick the bottom.

In terms of avoiding value traps I think the single best way to avoid the value trap is to buy high quality Net Net stocks.

So what I like to do with my own portfolio as much as possible is I look for stocks that are growing net profits, normalized net profits, net current asset value by roughly 10% or more per year.

And I like to look at companies that have a PE that is less than 10.

So the PE comes from a study that Joel Greenblatt did. So essentially I look for that type of companies.

I find that if you stick with those types of high quality companies you tend to avoid value traps. Those stocks tend to always work out really well.

Alvin: So you have additional indicators to complement the original Net Net principles in order to enhance your probability of getting a right stock.

Evan: That’s exactly it. Yeah, that’s really what it comes down to.

You know right now I think we have something like 400 Net Net Stocks on our stock list in our Net Net Hunter.

But really what I do is I use a range of criteria and I wither that down to roughly 30. 30 of the best quality picks and then out of that I am very selective and I do even more screening based on a couple of different score cards that I have developed.

One is called the Core7 Scorecards in a year. You’re familiar with that. So I use characteristics on that Scorecard to refine the list even further to get to the highest quality stocks available.

Alvin: You’re saying that you’re pretty selective on the stocks, so is there a number that you keep within for your portfolio size?

Evan: Yup.

The thing about diversification is that the smaller your portfolio the fewer positions that you have in it, the more volatility you’re going to see. The more positions you have in it, the less volatility that you’re going to see.

Now I’m a person who has thankfully developed a lot of emotional intelligence and a fairly strong temperament so I can handle a lot of volatility. So I tend to go with roughly 10 stocks on my portfolio.

Now that wouldn’t work for everybody.

But again I can stomach the volatility that comes along with that.

If you’re new to Net Net Stocks or if you’re new to mechanical investing then I would suggest roughly 20. I think 20 is a good number.

I wouldn’t start going more than 20 because then you really start to sacrifice quality in favour of justification. Yeah, there’s always a balance between the two.

Alvin: I see, okay. There is also another concern that if one has too many stocks you’ll require a lot of maintenance work, you need to keep up with the stocks.

What is the effort like when you monitor a portfolio of Net Net Stocks?

Evan: It really comes down to how many positions you have.

From mine I have 10 so I don’t actually spend a lot of time monitoring it. I don’t look at stock prices that often. I tried not to anyway.

I would say that my turnaround in a given year maybe a third, 30%.

For any one particular stock I just do the analysis on it, I buy it when it’s a good value and then I just wait for the quarterly results to come in or half year results depending on where you’re investing.

And I just reassess the numbers and then I just wait. And eventually chances are it’s going to pop up to net current asset value and then I sell it.

Alvin: So, it’s more like a quarterly affair. It’s not daily, it’s not even minutes, not even seconds.

Evan: Yeah, I think it’s good to monitor the news that comes out about a stock but a lot of it is noise. So you have to be selective about the things that you pay attention to.

As a long term investor, we’re always fighting against market noise.

So I would look at things like the company’s going to spend its cash on buying an acquisition and I would view that as a red flag and I would really think hard about possibly getting rid of the company or I would look at situations where the company has just had an offer made by a third party to acquire the entire company. And in that case if the company jumps up to the purchase price or above then I would seriously reconsider of selling it.

Alvin: I see. So you mentioned a little bit how you actually trim those Net Net Stocks that you’ve realized that were mistakes and you also mentioned that if they go to a certain price you would sell.

So is there a particular target profit that you always look at in your Net Net Stocks?

Evan: The target price that I normally look for is just the net current asset value.

So one of the things that you’ll find when you review the studies is that the companies that show the deepest discount in their current asset value tends to perform better than the rest.

So I tend to buy companies as cheaply as possible because that it helps I’m a cheap guy so just kind of fits. But after I’ve purchased I just wait for it to bounce up back to net current asset value.

I’m looking for as big a difference as possible. Now the nice thing about buying high quality Net Net Stocks is that often they will be increasing in the current asset value.

So while you’re sitting back waiting, your profit potential and your margin of safety is potentially growing.

Alvin: Especially when the company has retained earnings, the net current value will grow over time so your potential target will go up as well. Okay.

Evan: Exactly, exactly.

Alvin: I guess a lot of investors are very impatient nowadays. They will always ask: “how long must I wait for the Net Net Stocks to realize its values?” What is the typical time frame that an investor should expect?

Evan: As part of my study of Net Net Stocks when I was really diving into the strategy, I read through it and I sat through all of Warren Buffett partnerships letters in detail and in one of them, he says that Net Net Stocks tend to work out roughly 75% of the time or 80% of the time within two years. So that’s the kind of trends I’ll be looking for.

Alvin: Two years is a fair enough time I guess.

Evan: Yeah I think. But you know I mean nowadays to a lot of people that’s a very long time. A lot of people like to hit it out of stocks within months. It’s not something I can fathom but…

Alvin: They want to get rich yesterday, today is too late.

Evan: Yeah I know but to be honest it doesn’t work that way.

Alvin: So out of so many countries that you analyze the Net Net Stocks in, is there a particular country that offers a lot more of opportunities at this point and time especially recently the market has corrected a bit, so are there any interesting places that investors should be looking at?

Evan: Yes, definitely Japan, definitely Japan.

I find when I talk to people that subscribe to our free newsletter, a lot of people don’t want to invest outside the US and that’s really sad. Because there are a lot of opportunities outside the US.

Right now, most Net Net Hunter members are finding the best opportunities in Japan. Really if you want to invest in high quality Net Net Stocks, you should look internationally and Japan definitely has the best stocks on offer right now.

Alvin: Okay. Do you particularly diversify your portfolio of 10 stocks into different countries? Is there a deliberate quantity that you stick to or it’s wherever the opportunities does present itself?

Evan: I don’t diversify based on country but I could very well be wrong in that so I’m opened to be if I could be wrong in that strategy.

But my thought is that I might as well buy the best quality holdings because I don’t know what’s going to happen to the overall market. I don’t know what’s going to happen to a country situation.

There are thousands of really smart economists and analysts that are trying to figure that out and they don’t have a good track record. So what’s the hope that I’m going to be able to tell what are the companies or the countries going to do going forward.

I do exercise control over the things that I do know that I have control over and that really comes down to just picking high quality Net Net Stocks. So in short no, I don’t worry about what companies or countries that I’m investing in or I’m over exposed to a certain country.

Alvin: I see, besides countries, what about industries? Would you be concern if let’s say 10 stocks are all in a particular sector or industry? Would it be a little bit more susceptible to the unsystematic risk?

Evan:  I’m going to answer this question in a little bit different way.

I find out that there is really two areas that Net Net Stocks investors should avoid. The first one is China and the second one is resource and specifically resource exploration companies.

With the TSX (Toronto Stock Exchange) down like 75% over the last couple of years there is a lot of resource companies out there.

The problem with resource companies is that the company, especially if it’s an exploration company, it will spend basically its entire life acquiring capital from shareholders and pissing it away trying to find resources.

I knew somebody who is a mining engineer and he travels all around the world helping mines extract minerals and do assessments and all that.

And he says that roughly 1-2% are resource exploration companies that actually find something, the rest never do.

So if you are buying resource exploration Net Net (stocks), chances are the current asset value of the company is just going to be spent the longer you hold it. So I stay away from those companies.

I also stay away from China and Chinese Net Net. There is a great auditor, the name is Muddy Waters Research I’m not sure if you’ve heard of them.

Alvin: Yes definitely because they were slamming one of the Singapore stocks here.

Evan: Oh no. Well, I’m not going to touch Singapore.

Muddy Water Research dove into China and I think the Chinese has a proverb or at least according to the Muddy Waters Research the Chinese have a proverb.

And the proverb is when the water is muddy many fish can be caught I probably saying that a little bit wrong.

But there is a lot of misinformation when it comes to Chinese stocks and there are a lot of reverse merger scams that have taken place over the years. The auditors are just doing a horrible job in the West of auditing the company’s actual assets when the company is based in China.

So when I am looking at a Net Net (stock) I really want to make sure that when I am looking at the numbers it’s just not like smoke and mirrors. So for that reason I avoid China.

Alvin: I see. It’s the same experience here in Singapore, we have a lot of Chinese companies coming to Singapore to list and over the years, almost every year there are fraud cases being uncovered.

And I guess investors have really lost confidence in the corporate governance, the integrity of management in these Chinese companies. So yeah, we basically stay away from those as well.

Evan: Yeah, I mean it’s really sad. You can look on the net and you can find Chinese Net Net Stocks and they are dirt cheap. It’s like looking at the companies it’s like wow, it’s amazing they are growing at 20% a year, has no debts, why is this company priced at 10% of book value. It’s all smoke and mirrors, it doesn’t really exist.

Alvin: Exactly, yeah. Besides these two cautions that you give to Net Net investors, what other problems do you foresee investors investing using the Net Net strategy? Are there other things they should watch out for other than these two areas that you have just mentioned?

Evan: Yeah, I think first of all, watch where you get your information from.

There is a lot of articles about Net Net Stocks that I’ve read and I just call BS on them.

There’s one by… I won’t mention the name but they were talking about RadioShack, saying that because RadioShack was unprofitable they went bankrupt. Not the case at all. RadioShack had a debt–to-equity ratio of something like 400%, which is the real reason that they went bankrupt.

So I would be very careful about where you’re getting your information from. Again it goes back to researching the Greats, reading through the actual academic and white papers that have been done on Net Net (stocks) to get the actual facts.

And then also I very very strongly recommend that investors stay away from companies that have too high debt-to-equity ratio, companies that are burning through their net current assets at a fast rate.

I think those are two really really key types of stocks to stay away from.

Alvin: You mentioned about high debt-to-equity stocks that we should be watchful about. Is there a number that you can share with us that this would determine that these companies are too high in terms of their debts level?

Evan: Sure, I guess where you’re going to draw the line is kind of arbitrary.

But I believe that Graham actually maybe Graham has a higher standard but I tend to look for a company that has a debt-to-equity ratio of no more than 50% so I don’t want the debts-to-equity ratios that are higher than 50%.

But it doesn’t mean that I’ll invest in companies that have their debt-to-equity ratio that are below 50% because I have even stronger standards for my own portfolio.

I tend to focus on company that has tiny debt-to-equity ratio or no debts at all which is ideal or they have debt-to-equity ratio below say 20-25%.

Tweedy Browne has actually published a great paper and it’s available on the web for free you should download it right now. I think it’s called the 10 Ways to Beat An Index or what is it called…?

Alvin: How they do it in investing? I think I came across one of it, What Has Worked in Investing (Click to read) if I’m not mistaken.

Evan: Yeah, that’s the one. There it goes, slipped my mind.

Alvin: I read that too.

Evan: All right, good good. They have one section where they look at low price to book value stocks and included in that are Net Net Stocks.

And they have another one that takes the same group of stocks but just eliminates all the ones that have a debt-to-equity ratio about say 20-25%. And you can actually improve your results by something like 5% per year on average if you just exclude that. So, yeah that’s what I try to do.

Alvin: That’s a very large difference in terms of the performance, 5% a year compounded, right.

Evan: Yeah it’s huge, huge.

Alvin: Okay. Speaking about Net Net Stocks because Net Net Stocks essentially look at companies with assets, what about companies with very little assets like tech companies they would never have a chance to qualify as a Net Net Stock, right?

Evan: I think they would but again it comes down to what the price of the stock is.

So even if company has very little in terms of its assets if it has even less liabilities and then the stock price is tiny, razor thin then they can qualify as a Net Net.

I don’t think that excluding (aside from resource companies), I don’t think they are excluding it and possibly Pharma I don’t think that is really is worthwhile excluding any industry.

But if you look at something like Apple I don’t think there is going to be any Net Net any time soon.

Alvin: Yup. I understand that investing is a lot about psychology of the investor. What are the potential challenges that the investor would face if he/she uses the Net Net investing strategy?

Evan: Well, there is a couple that I’m always subject to. I don’t think anybody is really immune to the psychological hang ups that you get in the market or emotional decision making, everybody feels that pull.

The two that I feel the strongest but thankfully I’m aware of are price anchoring and probably also large drops.

So if I see a large drop in one of my stocks even though the fundamentals are sound and nothing has really changed in the stock’s story I feel a little pang there.

But I’ve gone better over the last few years of seeing that pain for what it is and kind of doubling down where appropriate.

Same with price anchoring sometimes you have a stock and the stock really hasn’t work out and you realized that it hasn’t really work out and it’s not going to work out and the probabilities are now against you profiting from the stock but you bought that let’s say $100 and now the stock is now down to $80. But you’re now thinking you know if I can just get 100 for it or even for 95 that’s fine.

But the price you’ve originally paid for the stock has actually no bearing on where the stock is going in the future or what type of decisions are appropriate for you now, so that’s another thing to be aware of.

Alvin: Are you an odd ball among your friends, in a sense that you’re the one that invest your money while most of your friends don’t really care about their own finances?

Evan: I think I’ve been a contrarian my entire life, I prefer “contrarian” not “odd ball”.

Alvin: And among your investing friends, how many of them are actually using Net Net strategy equivalent?

Evan: Actually of the people that are investing I would say that I’ve got about half of them started at investing and the other half think of value of approach.

One of my friends he’s a macro investor and he’s doing something that’s incredibly hard I mean he’s a bright guy but still incredibly hard. I know another guy who works for KPMG by the name of Scott Robertson and he is very intelligent. And he originally started with Warren Buffett type stocks but he started to branch out into Net Net (stocks) more.

Alvin: That’s good that’s good. So it’s more of you convincing other camps to join you rather than the others trying to convince you.

Evan: Yeah pretty much. I’m a bit hard headed.

Alvin: I remember I read that. That was what Warren Buffett wrote about Walter Schloss. He said that he is just stubborn. He just continued what he is doing he doesn’t really care about what others say. So I guess being a Net Net investor you would need that kind of stubbornness. That tinge of stubbornness is actually good.

Evan: Oh yeah for sure. I mean you have to be comfortable going against the crowd.

You have to be comfortable with who you are you know with your own conclusions. You just have to trust the evidence. When you buy Net Net you’re buying because most of the crowd is not agreeing with you, right.

You are fundamentally contrarian at that point.

Alvin: Yeah that’s right. Would you like to share a little bit more about the Net Net Hunter Membership?

Evan: Yeah sure.

Right now we have two membership tiers. We have the monthly tier and we have a yearly tier. And the monthly tier is $125 per month and the yearly tier works out to $42 a month.

But what we have available is we have our raw list of Net Net stocks, and like I said there’s roughly about 400 of those available and then we also have our stock shortlist. And we have whittled those down to about 30 of the 400.

On top of that we have a resource center that you’re talking about earlier. And within that resource centre you can find there is a lot of articles that explain what we do in detail.

And then we also have an inner circle forum. And our inner circle forum is where there is a lot of the really interesting discussions take place on Net Net Stocks. We’re always talking about one stock in particular or what a particular drop means or what’s the best strategy to use in a certain case.

And then we also have investment analysis. Now if you go with the yearly membership you have full access to investor analysis. We do 12 a year plus you have access to all of our back analysis. So you really pick my brain in detail, looking at how I assess stocks in the past.

One of the huge advantages of signing up (for netnethunter) versus for other sites is that you also can have direct access to me. So I help a lot of investors implement their investment strategy.

Those are the main advantages.

Alvin: Good. Do you do this full time, running Net Net Hunter?

Evan: Yeah, I do actually.

Most of my time…actually these days we’re going through a major website overhaul. So we’re upgrading our member’s section quite a bit to bring a lot of additional values to members.

A lot of my time is spent on planning and coordinating that, plus writing research, doing research analysis, writing articles. I also obviously manage my own portfolio and I started an investment partnership just recently that’s not open to the public. So that pretty much takes up all of my time.

When I first started Net Net Hunter I was actually working full time and I was putting the site together after hours, so home after a long day. I would just type away on my computer on the couch and just ended up crashing like 11 o’clock, 12 o’clock at night with the computer on my chest.

And then weekends I was writing articles. But after about a year it was clear that Net Net Hunter is really taking off so I decided to quit the job and just focus full time on this.

Alvin: It’s definitely worth it, right.

Evan: Yeah definitely.

Alvin: Let me guess who should subscribe to the Net Net Hunter?

It’s someone who is interested in invest using the Benjamin Graham way and doesn’t know how to go about it or he/she may not have the time to do it or he/she is just plain lazy.

They need a lot of resources that are being prepared for them to just make decisions and this membership is where it comes in. Is that sort of target audience you’re looking for?

Evan: Yeah I think that hits the mark.

Right now we’ve set up for to help deep value investors to shorten their research time, so we really wanted to help people who want to do their own research but just don’t have the time to do as much research or as much stocks selection as they would want to.

We spent roughly 16 hours every single month going through the list, coming up with the best possible stocks and then all the analysis on top of it that we do. It really helps people speed up their research.

Now I would say that those are probably the number one type of people that should be signing up the Net Net Hunter.

But I want to stop here and make it clear that two types of people that should not definitely use Net Net Stocks.

The first being people who are managing more than US$10 million. But I know that it’s you, you’re a rich guy. If you’re managing more than US$10 million then this strategy is probably not for you.

These companies are tiny, they are not small cap. They are nano cap and micro cap. They are often also illiquid. So if you have a lot of money to put to work and I define ‘a lot of money’ by being over US$10 million then this strategy is definitely not for you, you probably can’t make it work.

Another type of people that should not be using this strategy are people that do not have a strong temperament or are really lacking in emotional intelligence because again you’re buying into a company that has been just devastated by a major business problem.

You’re buying into a company that has been hammered by the crowd so you’re working against the crowd plus they are nano cap and micro cap stocks so most people don’t want to buy those anyway.

So you really have to have a strong emotional temperament in order to be able to use this strategy.

Now, luckily those two limiting factors screened out a lot of people so if you’re somebody who has a very strong emotional intelligence, very strong temperament and you are managing say 5 million or less, then you have a definite competitive advantage over most other people in the marketplace.

We didn’t really talk about the returns on offer but if you read the studies, the studies very consistently show that this strategy beats the market by roughly 10-15% per year on average so that would work out to roughly 20-25% cumulative annual return on average which sounds far-fetched.

I’m going to totally admit that it sounds far-fetched because you just don’t hear those types of number in finance but the only reason that those numbers are available still, after something like 100 years of back testing.

People like Graham and Schloss using the strategy is because the big players can’t get into it. Anybody with more than $10 million just can’t use the strategy. As well a lot of people just aren’t cut out to buy Net Net because they don’t have the emotional temperament.

They can’t imagine buying anything besides a Warren Buffett moat type stock you know that like a Coca Cola or an Apple.

Alvin: Exactly. I actually read your article where you talk about why did Warren Buffett eventually switched his strategy towards to a more ‘Philip Fisher’ kind of style.

It was because he realized that his investment capital has grown so much that he couldn’t hunt for these Net Net stocks anymore because he eventually was pushing up the price.

You’ve heard it, all the viewers heard it that what Evan has just said.

So if you are not Warren Buffett if you don’t have so much money, more than US$10 million and you have the temperament to handle volatility, handle stocks that are ugly, stocks that have problems but they offer lots of potential because of huge marginal safety you should head onto to sign up for a subscription.

So it’s, right. Great.

Thank you Evan for the wonderful interview. I’m glad that we are able to pick your brain on the Net Net investing strategy. I think the viewers would benefit a lot from this interview. So, thank you Evan.

Evan: Yeah not a problem. Hope we can do it again some time.

Alvin: All right, great. Cheers

Evan: Bye.

P.S. Evan has been kind to offer his ebook, Retire Young & Rich, worth US$39.99, for BigFatPurse readers when you sign up for Net Net Hunter subscription. Remember to key in the coupon code ‘BIGFATPURSE‘ at the point of purchase and Evan will personally email you the ebook. Valid for one week only.

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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