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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Q. who wrote (11879)	1/17/2001 12:52:29 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78625

N, I've been trying to find that 2/3 figure for net-nets in Intelligent Investor, and I don't see it. I know at some point that's what Dr. Graham recommended, but I just do not see it in my edition of the book. Do you or anyone else have the citation? I see under Portfolio Policy: The Positive Side, "the enterprising investor is to buy them (aside: I believe "them" refers to his definition of secondary - as opposed to primary - common stocks, also ordinary preferred dividends, and foreign bonds) only when obtainable at bargain prices - which we define as prices not more than two-thirds of the appraisal value of the securities." I don't see a 2/3 figure anywhere else. In the section on "Bargain Issues, or Net-Current-Asset Stocks" he provides (Table 15-2) 5 stocks selling below net current assets (my '73 edition which features stocks in 1970) of "prominent" companies. Only one of the 5 is at 2/3 of net current assets. Perhaps the table is to illustrate that even "prominent" companies are sometimes below net current assets. Interesting to me that the "prominent" feature is what people here might deem important when they select net nets. (include myself) There's no mention of 2/3 for the buy criterion. "...If one can acquire a diversified group of common stocks at a price less than the applicable net current assets alone-- the results should be quite satisfactory." I give up here. Maybe it's buried in the word "applicable". Maybe the book can only provide a starting point for the defensive and enterprising investor. It's left to the enterprising investor to dig further. Or of course, maybe the 2/3 criterion is there, but I just missed it. Paul S.

To: Q. who wrote (11879)	1/17/2001 1:22:37 AM
From: TimbaBear	Respond to of 78625

Thank you for your response! Lately, though, there are lots more stocks selling below net current assets, or even below net cash, than in recent memory Exactly right, and we may get the opportunity to see even more, which is why I'm concentrating so hard to clarify my thinking for this type of evaluation and selection. When Greenspan was talking around the time of his first rate hike, he said that the existing barriers to inflation were starting to go away. At that time, I think he listed the pressures of a global marketplace were increasing competition and thereby exerting a downward influence on prices, the Asian crisis had peaked, but that those countries were exporting their way out of crisis, which meant lower prices here; American's fearfulness regarding rapid obsolescence of job skills was preventing them from demanding more concessions, although that was being offset by a tight labor market to some extent, and the main one, productivity gains, outpaced the other sources of inflationary pressure. Most of those conditions have changed, global recovery means more demand and therefore increasing prices, the Asian crisis is almost a distant memory, the main source of productivity gains, capital expenditures, has slowed way down, which means that gains in productivity have probably peaked, and the less rapid change in technology means that Americans may be getting a little more confident in their skill sets. I'm saying all of this to lay the groundwork for my belief that inflation now has more potential to become the problem we have been worried about for so long than ever before in this bull run, and it may provide us with more opportunities to get NetNets if we survive the turbulence with some investment capital left.