Definition of Net-Net Investing§
Net-Net Investing is a value investing strategy centered around the concept of purchasing stocks for less than their net current asset value (NCAV). The foundation of this strategy lies in taking a company’s current assets, which include cash and cash equivalents, and adjusting them for accounts receivable (accounting for doubtful accounts) and inventories (liquidation values). The goal is to find stocks trading at prices less than their net-net value, which is calculated by deducting total liabilities from the adjusted current assets.
Net-Net Investing vs Double Net Lease Comparison§
| Aspect | Net-Net Investing | Double Net Lease |
|---|---|---|
| Definition | A value investing strategy focused on net current assets | A lease structure where tenant pays property taxes & insurance |
| Focus | Short-term liquidations of current assets | Long-term commercial rental agreements |
| Long-term Assets Considered | No | Yes |
| Strategic Goal | Find undervalued stocks | Generate rental income with reduced landlord risks |
| Historical Proponent | Benjamin Graham | N/A |
Key Concepts and Examples§
Example of Calculating Net-Net Value§
Assume a company has the following current assets:
- Cash: $100,000
- Accounts Receivable: $50,000 (after adjusting for a doubtful allowance of $10,000)
- Inventory: $30,000 (with a liquidation value of $10,000)
And the total liabilities are:
- Total Liabilities: $70,000
Calculating Net-Net Value:
The company is seen as a bargain if its shares sell for less than $80,000 total net current assets.
Related Terms§
- Net Current Assets (NCA): Total current assets minus total liabilities.
- Liquidation Value: The perceived amount that could be realized from selling an asset quickly.
- Benjamin Graham: A legendary investor known as the “father of value investing,” who introduced the net-net strategy.
Visualization§
To illustrate the concept of net-net investing, here’s a simple diagram:
Humorous Quotes & Historical Facts§
- Wise Quote: “Value investing is like fishing. The net-net strategy is your trusty net – just don’t forget to check which fish are actually swimming!” 🎣
- Fun Fact: Benjamin Graham was so devoted to value investing that his friends said he could take a company’s annual report and make it sing, or at least hum! 🎶
Frequently Asked Questions§
Q1: What is the main focus of net-net investing?
- A1: The primary focus is on acquiring stocks priced below their adjusted net current assets.
Q2: Is net-net investing a long-term strategy?
- A2: It is primarily considered a short-term strategy, as it does not factor in long-term assets or liabilities.
Q3: Who is the father of value investing?
- A3: Benjamin Graham, who formalized the approach and philosophy behind net-net investing.
Suggested Online Resources§
Suggested Books for Further Studies§
- “Security Analysis” by Benjamin Graham and David Dodd
- “Value Investing: From Guru to Guru” by Tren Griffin
Test Your Knowledge: Net-Net Investing Quiz§
Thank you for diving into the mysterious waters of net-net investing with us! Remember, just like fishing, it takes skill and patience to reel in the big catches or to assess true value. Happy investing! 💰🐟
