Benjamin Graham’s secret investment strategy

In a book called “The Intelligent Investor”, Benjamin Graham wrote about the highly effective methods he used at his investment firm Graham-Newman. The most famous and popular strategy was investing in what Graham referred to as net nets, or net working capital stocks.

Graham looked at the value of a firm‘s net current asset (Current assets minus firm’s total liabilities and preferred shares). Firms trading below a firm’s net current asset value essentially meant trading below real world liquidation value.

Why would a firm be priced below its net current asset value?

Quite simply because net nets are ugly, dirty, firms that most investors don’t want to touch. They have usually suffered a major business problem that has disrupted business, eroded revenue, and completely destroyed profitability. These firm’s are quite literally given up for dead. Investors avoid these firms like a muddy pig running through a crowded mall (picture that!).