Deep value usually punishes greed. Here, buying only the very cheapest paid the most. The teardown follows the cash.

Deep value has a famous failure mode: the cheapest stocks are often cheap because they are broken, so squeezing into the very cheapest tends to load you with value traps and drag the return down. This screen did the opposite. The reason is a single, quiet filter.

Concentration paid, which almost never happens

Line the variants up from broad to tight. The cheapest decile and the cheapest thirty compounded around 24 to 25% a year, already strong. But squeezing all the way into the cheapest ten names, which usually backfires, instead lifted the return to about 33%. On most value screens that move buys you a basket of falling knives. Here it did not, because the screen only ever considered companies with positive free cash flow. The filter had already thrown out the traps, so the deepest cheapness left standing was real cheapness, not distress.

The weather it needs

Cash cheapness is still a value strategy, and value has a season. Split the decade by macro backdrop and the pattern is the one deep value always shows: it does its best work coming out of fear, when cheap cyclicals re rate, and it leans on the broad direction of growth and rates rather than sailing serenely through every climate. It is not an all weather screen, and it does not pretend to be. Knowing which weather it wants is half of holding it sensibly.

Did the cheapness actually beat the index, cut for cut?

Averages can flatter. Count it plainly instead: pick any month, hold, and how often did the cheap cash generators beat a plain index fund? Over one year it was a coin flip with an edge; over five years it was close to a certainty.

The one year hit rate looks modest because the swings are so wide, but every extra year of holding tilted the odds sharply in your favour. Time, for this strategy, is not just patience. It is the mechanism.

What it held, and the worst it would have handed you

Two last checks make the risk concrete: what the basket was actually made of, by company size, and, instead of the single drawdown path, the worst fall you would have suffered no matter which month you started and held for five years.

A deep value engine with a cash conscience

What makes this screen work is not the cheapness alone, it is the discipline attached to it. Any value trap can look cheap on earnings; far fewer can fake positive free cash flow year after year. That single condition is what lets you concentrate without being destroyed, and it is what turned a rough, micro cap, cyclical basket into one of the best compounders we have measured. The price of admission is real: a two thirds drawdown and a portfolio of unfashionable small companies. Held as the aggressive sleeve of a larger plan, sized so its worst year cannot force your hand, it is a genuinely powerful engine. Held with money you might need back in a hurry, it will hurt you.

So we took it to Krest, and ran it through the whole test.