I look at a lot of net-net investments and the 2/3 ratio is a nice rule of thumb, but not gospel to me. On this thread I think you've seen me add to net-net a very conservative valuation of owned real estate and treat that the same as net current assets. Graham never said this, but I don't think its anything he would have objected to.
I also look for a profitable company, paying a dividend if possible. I also look for postive free cash flow.
As Timba said, there ain't many of these. I find one every 3-6 months. And they all go up 30-50% within a year. I have never lost more than a few bucks on one of these. I probably buy 5% of the net-nets that I look at, but it usually takes about 1 minute of analysis each to rule out half the ones I pass on. I'm sure some of the ones I pass on triple, but that's not my game.
This is not Graham's strategy, its my adaptation of Graham's wisdom. Central to Graham's strategy is diverification among 30 or 40 net-nets, which you might actually be able to do today unlike any time in the last five years. The vast majority of the stocks you buy by this strategy will look like crap, Graham understood that - I think what he would have said is that everybody knows they look like crap, that's why they trade below their net current assets.
My strategy has always been to use some hard work to find the needle in the haystack that doesn't look like crap. The ones I buy aren't Microsoft, but they're real companies. I own about five of these now. Syms and GTSI are probably my favorites going forward although both are up substantially from where I bought them. |
