Bargain issue

The Holy Grail for followers of value investing. The term has a general meaning indicating good value in an ordinary share. However, through the writing of Benjamin Graham, it also has a specific meaning which was successfully applied by Graham and continues to be used by orthodox value investors, although usually with some modifications. These allow for the fact that stock markets are now generally more highly valued than when Graham was working from the 1930s to the 1970s.

The specific meaning of a bargain issue is when a company's ordinary shares sell in the market for less than the per share book value of current assets after deducting all other claims on the business. In other words, take a company's current assets (inventories, debtors, cash) and deduct not only the current liabilities (creditors, short-term borrowings) but also the long-term borrowings and any other allowances. The net result is that the shares of such companies sell for less than the value of net current assets with any fixed assets thrown in for nothing. Graham found that buying a selection of such shares across a variety of industries invariably produced good investment returns.