How it works
Take a company's current assets — cash, receivables, inventory, things that turn into cash within a year. Subtract every liability it has, short- and long-term. What's left is net current asset value (NCAV): a rough, conservative estimate of what shareholders might get if the business shut its doors tomorrow and paid off everyone it owed.
Graham's rule was to buy when the whole company's market value is below two-thirds of that number. You are paying less than liquidation value for the liquid assets alone, and getting the buildings, equipment, customers and any future profit thrown in for nothing. That gap is the margin of safety.
Graham never bought just one. He bought baskets of 20, 50, even 100 of them, expecting some to fail and more to recover.
Why it works
A company only sells below its net cash when investors have given up on it entirely — losses, a failed product, a boring industry, a tiny size that no fund can buy. The price reflects despair, not arithmetic. Three things tend to close the gap: the business recovers even modestly, management or an activist returns the cash, or someone buys the whole company. Any of them is enough.
The track record
| Who | Period | Result | Market |
|---|---|---|---|
| Henry Oppenheimer's test of the rule (NYSE, AMEX, OTC) | 1970–1983 | ~29%/yr mean; 28.2% geometric | 11.5%/yr |
| Walter Schloss, who owned baskets of cheap, asset-rich stocks | 1956–1984 | 21.3%/yr | 8.4%/yr |
| Tweedy, Browne — built its early business on Graham-style net-asset stocks | 1968–1983 | 20.0%/yr | 7.0%/yr |
Buffett's early partnership made much of its money this way too, in what he later called "cigar butts": one free puff left, but free.1 Oppenheimer's portfolios held between 18 and 89 stocks at a time — diversification is part of the method, not an afterthought.2
The catch
- They're rare, and usually tiny. In expensive markets only a few dozen U.S. stocks qualify, and most are small.
- Today's net-nets are often cash-burning biotechs. A drug developer with $200M in the bank and a $120M market cap looks like a net-net. But if it's burning $80M a year, that cash won't be there next year. Check the cash burn before buying.
- Balance sheets go stale. NCAV comes from the most recent quarterly filing. Inventory can be worth less than its book value.
Today's darlings
These are the companies that pass the screen right now, ranked the way the screener ranks them. Figures come straight from each company's SEC filings, updated every night. We filter out obvious data oddities (one-time special dividends, blank-check shells, sub-$50M micro-caps) so the list shows names worth a closer look — not recommendations.
See every match, with the arithmetic
Open the screener with Net-Nets already selected. Free to use; every row explains exactly why it qualified.
Run the Net-Nets screen- Buffett, "The Superinvestors of Graham-and-Doddsville" (1984); Berkshire Hathaway 1989 shareholder letter.
- Oppenheimer, "Ben Graham's Net Current Asset Values: A Performance Update," FAJ (1986); Alpha Architect summary.
Educational content, not investment advice. Past performance — of people, papers, or backtests — doesn't guarantee future results. Do your own homework before buying anything.