Net-Net Value Investing Strategy

The Net-Net Value Investing Strategy, developed by Benjamin Graham and Warren Buffett, evaluates a company’s stock by considering its net current assets per share after adjusting for doubtful accounts and inventory values. Let’s find out how the net-net strategy works.

The Net-Net Value Investing Strategy, created by Benjamin Graham, is a value-based method for evaluating a company’s stock. It focuses on the company’s net current assets per share (NCAVPS), taking into account cash and equivalents, adjusting for doubtful accounts and inventory values, and subtracting total liabilities. This approach aims to identify undervalued stocks and provide a margin of safety for investors.

In this post, we look at the Net-Net Value investing strategy. We end the article with a backtest and further research about the strategy.

Related reading: – If you are looking for a profitable investment strategy, we have published hundreds since we started this blog in 2012.

Table of contents:

The Net-Net Value Investing Strategy is an investment approach that focuses on buying value stocks using their net current assets per share (NCAVPS). According to Warren Buffett, those are stocks whose prices are less than 2/3^rd of their NCAVPS.

Investors use this strategy as a means of identifying undervalued stocks in the market. They calculate a company’s net current assets per share (NCAVPS) by taking into account its cash and cash equivalents, making adjustments for doubtful accounts, and reducing inventories to liquidation values. The net-net value is then obtained by subtracting total liabilities from the adjusted current assets.

Investors using this strategy are looking for companies that are trading at a significant discount to their intrinsic value, as represented by their net-net value.

By buying these stocks, they aim to realize a profit over the long term as the market corrects and the stock price increases to its fair value. The Net-Net Value Investing Strategy provides a margin of safety for investors, as it focuses on current assets, which are considered to be more liquid and less risky.

Definition of Net-Net Value Investing

Net-Net Value Investing is a stock valuation and investment strategy developed by Benjamin Graham, an influential economist and investor.

The strategy focuses on evaluating a company’s stock based on its net current assets per share (NCAVPS), which is calculated by taking cash and cash equivalents at face value, reducing accounts receivable for doubtful accounts, and reducing inventories to liquidation values. The net-net value is then determined by subtracting the company’s total liabilities from its adjusted current assets.

This approach prioritizes current assets, providing a margin of safety for investors and aiming to identify undervalued stocks. The idea behind this strategy is to purchase stocks at a significant discount to their intrinsic value, expecting to realize a profit over the long term.

Benefits of Net-Net Value Investing

Net-Net Value Investing offers a lot of benefits for investors. These are some of them:

It provides a margin of safety by prioritizing current assets which are considered to be more liquid and less risky.