Winding Down The Cheap Stocks 21 Net Net Index; Outperforms Russell Microcap by 1371 bps, S&P 500 by 2537 bps

Two years ago, we launched the CS 21 Net/Net Index, the first index designed to track net/net performance. The index was cap weighted, and comprised of the 21 largest net/nets by market cap at the time of launch. We had a few restrictions on inclusion in the index, including average daily volume and price, but otherwise, this was a very simply constructed index.

We originally intended to replace companies that were acquired, but thought better of it, instead deciding to keep proceeds from acquistions in cash. We also did not replace any names if they no longer met the net/net criteria. This was simply an experiment in order to see how net/nets at a given time would perform over the subsequent two years.

The results are in, and while it was not what we'd originally hoped for, it does lend credence to the long-held notion that net/nets can outperform the broader markets.

The Cheap Stocks 21 Net Net Index finished the two year period relatively flat, gaining 5.1%. During the same period, The Russell Microcap Index was down 8.61%, while the Russell Microcap Value Index was down 9.9%. During the same period, the S&P 500 was down 20.27%.

Here are the index constituents, their original weights, and performance.

Adaptec Inc(ADPT)
Weight: 18.72%
Computer Systems
+7.86%

Audiovox Corp(VOXX)
Weight: 12.20%
Electronics
-29.28%

Trans World Entertainment(TWMC)
Weight:7.58%
Retail-Music and Video
-69.55%

Finish Line Inc(FINL)
Weight:6.30%
Retail-Apparel
+350.83%

Nu Horizons Electronics(NUHC)
Weight:5.76%
Electronics Wholesale
-25.09%

Richardson Electronics(RELL)
Weight:5.09%
Electronics Wholesale
+43.27%

Pomeroy IT Solutions(PMRY)
Weight:4.61%
IT
Acquired
-3.8%

Ditech Networks(DITC)
Weight:4.31%
Communication Equip
-56.67%

Parlux Fragrances(PARL)
Weight:3.92%
Personal Products
-51.39%

InFocus Corp(INFS)
Weight:3.81%
Computer Peripherals
Acquired


Renovis Inc(RNVS)
Weight:3.80%
Biotech
Acquired

Leadis Technology Inc(LDIS)
Weight:3.47%
Semiconductor-Integrated Circuits
-92.05%

Replidyne Inc(RDYN)Became Cardiovascular Systems (CSII)
Weight:3.31%
Biotech
+126.36%

Tandy Brands Accessories Inc(TBAC)
Weight:2.94%
Apparel, Footwear, Accessories
-57.79%

FSI International Inc(FSII)
Weight:2.87%
Semiconductor Equip
+66.47%

Anadys Pharmaceuticals Inc(ANDS)
Weight:2.49%
Biotech
+43.75%

MediciNova Inc(MNOV)
Weight:2.33%
Biotech
+100%

Emerson Radio Corp(MSN)
Weight:1.71%
Electronics
+118.19%

Handleman Co(HDL)
Weight:1.66%
Music- Wholesale
-88.67%

Chromcraft Revington Inc(CRC)
Weight:1.62%
Furniture
-54.58%

Charles & Colvard Ltd(CTHR)
Weight:1.50%
Jewel Wholesale
-7.41%

Cash Weight: 8.58%

We are in the process of putting together a new net/net index, and still trying to decide whether or not we want to disclose the constituents, or keep them under wraps. Stay Tuned.

*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.