Saturday, September 26, 2009

Cheap Stocks 21 Net/Net Index In Positive Territory

It's been quite awhile since we published an update on the Cheap Stocks 21 Net/Net Index, an experiment we launched in February 2008. The purpose was to test the waters of net/net indexing--a concept we believe to be quite compelling.

At the time of launch, the quality of net/nets was subpar; not nearly as compelling as the opportunities we saw early in 2009. After the initial year, performance was somewhat disappointing, as the index was down 36%, versus -40% for the Russell Microcap Index.

Along the way, we did alter the rules of the index slightly. Instead of replacing comnpanies that were acquired, or filed for bankruptcy, we simply left the index as is, and any funds from acquisition were left in cash. We decided to take a set it and forget approach to what we believe is the first ever net/net index. The original index value was set at 100.

Along the way two companies, InFocus Corp, and Renovis were acquired, which resulted in cash of $4.59. Another company, Replidyne, merged with Cardiovascular systems, which we left in the index. Surprisingly, there has been just one company that has effectively gone under, Handelman, which is in the process of liquidation, and now represents just .01% of the Index.

Below are the current Index constituents, and their weights. Dominated by Adaptec and The Finish Line, this was one of the pitfalls of a cap-weighted index. Due to the experimental nature of this venture, that was fine with us, for now. Perhaps our next version will be equal weighted.

Current Cheap Stocks 21 Net Net Index Constituents

Finish Line Inc(FINL)27.13%

Adaptec Inc(ADPT)22.17%
Computer Systems

Audiovox Corp(VOXX)8.8%

Richardson Electronics(RELL)5.16%
Electronics Wholesale


MediciNova Inc(MNOV)4.21%

Anadys Pharmaceuticals Inc(ANDS)4.11%

Nu Horizons Electronics(NUHC)4.06%
Electronics Wholesale

Pomeroy IT Solutions(PMRY)3.96%

Ditech Networks(DITC)3.04%
Communication Equip

Parlux Fragrances(PARL)2.27%
Personal Products

Emerson Radio Corp(MSN)1.93%

FSI International Inc(FSII)1.80%
Semiconductor Equip

Trans World Entertainment(TWMC)1.61%
Retail-Music and Video

Leadis Technology Inc(LDIS)1.58%
Semiconductor-Integrated Circuits

Tandy Brands Accessories Inc(TBAC)1.39%
Apparel, Footwear, Accessories

Cardiovasular Systems(CSII)1.06%

Charles & Colvard Ltd(CTHR).62%
Jewel Wholesale

Chromcraft Revington Inc(CRC).51%

Handleman Co(HDL) .01%
Music- Wholesale

The current index value is 100.32, so the Cheap Stocks Net Net Index is up .32% since its February 12, 2008 inception. During that same period, the Russell Microcap Index is down about 22%.

*The author has a position in Chromcraft Revington(CRC). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

No comments: