Net-Net
Net-Net refers to an investment strategy that involves identifying undervalued companies whose Stock prices are less than their net current Asset value (NCAV). This approach is based on the principle that the market sometimes misprices Assets, allowing investors to buy Stocks at a discount relative to their net tangible Assets.
Formula: Net-Net value is calculated as:
- NCAV = Current Assets – Total Liabilities
Investors look for Stocks trading below this NCAV to find potential bargains.
Example: If a company has current Assets of $10 million and total liabilities of $6 million, its NCAV would be $4 million. If the company’s Market Capitalization is only $3 million, it is considered a Net-Net Stock.
Case: Benjamin Graham, known as the father of value Investing, popularized the Net-Net strategy in the early 20th century. An example from his time includes companies trading below their net current Assets, which he used to demonstrate potential investment opportunities.