...reading of Graham, organic growth prospects are a reasonable expectation even from a net net.
regarding: "growth prospects to push up tangible book value", I will take that to mean net (bottom-line) earnings must exist and/or increase.
In my view, this is an assumption, and not specifically what Graham said.
In reading Intelligent Investor you will notice that every example discussed of net-nets, the company did have positive earnings. At the time of writing, there were many net-nets around, and Dr. Graham chose the one's to illustrate that had earnings. I'd say that was a reasonable thing to do - pick the best of the bunch.
In looking at his net-nets, which are stocks Dr. Graham recommended buying which traded for 2/3 of net current assets (after all liabilities removed), there's nothing written by him that says it's a requirement that they have to have earnings or growth prospects. Whether or not they have to have earnings is relevant nowadays, because there are so few net nets that do have earnings, and with "few" it's hard to find enough to make a package of them (which I believe Dr. Graham would suggest about net-nets - and which could be done when he wrote in 1972-3.) Which makes buying the net-nets with no earnings more of a necessity if one is to play the net-net value game now. I have found that to not be very satisfactory. |
