Does Benjamin Graham's Net-Net Strategy Still Work in 2026?

Benjamin Graham developed the net-net strategy in the 1930s. Nearly a century later, does it still work? New data from UK and US markets confirms net-net portfolios continue to outperform indices — particularly in the UK, where the strategy has structural advantages.

The Academic Evidence

Let's start with the numbers, because they are remarkable and often understated. A 2010 study by Tobias Carlisle and colleagues found UK net-net portfolios returned 31.2% annually over a 10-year period — versus 20.5% for the FTSE. Henry Oppenheimer's 1986 study found US net-nets returned 29.4% annually from 1970-1983 versus 11.5% for the US index.

Why the Strategy Continues to Work in 2026

The persistence of the net-net anomaly is counterintuitive in an age of algorithmic trading. The answer lies in institutional constraints, not information gaps. Fund managers operating with billions cannot meaningfully participate in the AIM micro-cap space — a £12 million market cap company is simply too small for most institutional mandates. This structural exclusion creates a permanent hunting ground for individual investors.

Liquidity is the second constraint. Net-nets are typically illiquid. Institutional investors with redemption obligations can't hold them. Individual investors with ISAs and SIPPs and no redemption pressure can be patient in ways institutions cannot.

Psychology is the third factor. Net-nets look terrible by every conventional metric — declining revenue, unglamorous products, management teams nobody has heard of. Holding a portfolio of these companies requires a discipline most investors find genuinely difficult to maintain.

Building Your Net-Net Portfolio in 2026

Graham's own guidance was to buy a basket of 30+ net-nets with no individual holding above 4%. Modern research suggests 15-20 positions captures most of the statistical benefit while remaining manageable. Rebalance annually: sell anything that has risen above NCAV, sell anything below NCAV after 2-3 years with no catalyst, and reinvest in new qualifying names from the screener.

Sources: Xiao & Arnold (2010), Oppenheimer (1986), Carlisle (2012) "Quantitative Value", Graham & Dodd "Security Analysis". Net-net return figures reflect backtested academic research, not forward projections.