Net Nets

Hi there,

I have understood the net nets investing strategy as buying those securities that are trading at a price less than 2/3*(Current Assets-Total Liabilites)/Shares Outstanding. How can I find all such stocks in the USA using your free screener?

Thanks,
Siddhartha

Stocks Discussed: 
Alibaba Health Information Technology Ltd (ALBBY)

Submitted by Sidlaw. Created on Thursday 11th May 2023. Updated on Thursday 11th May 2023.

Submitted by GrahamValue on Thursday 11th May 2023

Dear Siddhartha,

Thank you for your forum post!

One can always find all stocks that are simply selling under two-thirds of their NCAV on the free Classic Graham Screener using:

NCAV or Net-Net(%) ≥ 150%

But Graham did not actually recommend the two-thirds NCAV criteria for his readers. He was simply talking about his own investment operations.

Thank you again for your forum post!

Watch Video

Submitted by Sidlaw on Friday 12th May 2023

Thank you for guiding me on this.

When Graham was so successful with this investment strategy, why would one not pursue this sstrategy?

I believe Buffett also used this same strategy in the first decade of his money management career and was hugely successful with this.

I also read about a study conducted by Oppenheimer for 13 years in the book "Deep Value" where this same strategy while rebalancing once every year on December 31 in an equally weighted fashion beat the major market indices in a phenomenal fashion. There were similar other studies which performed phenomenally well.

Why would one not pursue this strategy when such stocks exist?

I have one more question - does the NCAV metric in the screener also take preferred stock into account?

Thanks,
Siddhartha

Submitted by GrahamValue on Friday 12th May 2023

Dear Siddhartha,

Thank you for your comment!

GrahamValue only lists Common Stock. No Preferred Stock is listed on GrahamValue.

The short answer to your other questions above is that GrahamValue strictly follows only what Graham recommended. Graham gives detailed explanations for his specific recommendations in The Intelligent Investor.

Some of them have already been discussed in Applying The NCAV Strategy Correctly, and Benjamin Graham's Notes on Selling For Value Investors.

The positive EPS requirement is a qualitative check for NCAV stocks; and is — if you think about it — a very logical rule. There's really not much point buying a stock for its Current Assets (cash equivalents), if the company's losing money.

Thank you again for your comment!

Buffett on Cigar Butts

Submitted by Sidlaw on Friday 12th May 2023

Hi there,

By preferred stock, I mean whether preferred stock is subtracted while calculating NCAV on the screener i.e. whether NCAV = Current Assets - All Liabilities - Preferred Stock.??

Thanks,
Siddhartha

Submitted by GrahamValue on Friday 12th May 2023

Dear Siddhartha,

Apologies for the misunderstanding!

GrahamValue did explicitly deduct Preferred Stock in its calculation for NCAV stocks in the past, as can be seen from the older articles and forum discussions.

However, the deduction was removed briefly as there was a lack of clarity about whether Total Liabilities excluded the Preferred Stock component in financial regulations across regions; as deducting Preferred Stock separately in such a scenario could lead to a double deduction.

However, after further investigation, the deduction has been included again to ensure maximum compliance; and the NCAV calculation is now therefore again done as shown below.

The changes should propagate to the entire database in a few hours time.

Thank you again for your comment!

NCAV = (Current Assets - Total Liabilities) ÷ Shares Outstanding

Submitted by Sidlaw on Tuesday 16th May 2023

Hi there,

You told me that all stocks that are selling for less than 2/3 NCAV can be found by using Free Classic Graham Screener and using NCAV >150. But this page on your website which says that all stocks are not listed under Free CLassic Grahan SCreener. Can you please throw more light on this? By "all", I mean all listed stocks in the US.

Submitted by GrahamValue on Tuesday 16th May 2023

Dear Siddhartha,

Thank you for your comment!

Stocks with Graham Numbers and NCAV figures exceeding 70% can always be detected by the Classic Graham Screener, except in the rare case that the stock also clears all the qualitative criteria for that specific grade and therefore has an actual Intrinsic Value greater than 70%.

Please see Search vs Classic vs Advanced for details. It may also help to go through the tutorial video list in the Quick Reference.

Thank you again for your comment!

Submitted by Sidlaw on Wednesday 17th May 2023

Hi there,

Thanks for responding.

I am only interested in replicating the strategy that Graham used in his investment operations which was to create an equally weighted portfolio of all stocks trading at less than 2/3 NCAV and rebalance the portfolio annually on December 31st. Is it possible to find all such stocks listed in the US using your screener for free?

Thanks,
Siddhartha

Submitted by GrahamValue on Wednesday 17th May 2023

Dear Siddhartha,

Thank you for your comment!

Please note the updated reply above to your earlier query on deducting Preferred Stock.

Also, as mentioned above, one can find all stocks that are selling under two-thirds of their NCAV using the free Classic Graham Screener. The Preset Links for the same were given in the same link that was shared above.

However, if you're looking for a short answer, you can get all such U.S. stocks by clicking on this link. But again, please note that such stocks would not be fully compliant with Graham's recommendations.

Thank you again for your comment!

Submitted by Sidlaw on Monday 22nd May 2023

Hi there,

Everything is clear to me now.

I only have one question - In this link (https://www.grahamvalue.com/features), it states that Classic Graham Screener has 149,000 stocks and not 154,000+ stocks. Doesn't this mean that all possible stocks are not present on Classic Graham Screener and eventually mean that I won't get the full universe of stocks that are trading below 2/3 NCAV?