what is net net 
net net is a value investing technique developed by the economist benjamin graham in which a company s stock is valued based solely on its net current assets per share ncavps net net investing thus focuses on current assets taking cash and cash equivalents at full value then reducing accounts receivable for doubtful accounts and reducing inventories to liquidation values net net value is calculated by deducting total liabilities from the adjusted current assets 1net net should not be confused with a double net lease which is a commercial rental agreement where the tenant is responsible for both property taxes and premiums for insuring the property understanding net net investinggraham used this method at a time when financial information was not as readily available and net nets were more accepted as a company valuation model when a viable company is identified as a net net the analysis focused only on the firm s current assets and liabilities without taking other tangible assets or long term liabilities into account advances in financial data collection now allow analysts to quickly access a firm s entire set of financial statements ratios and other benchmarks essentially investing in a net net was a safe play in the short term because its current assets were worth more than its market price in a sense the long term growth potential and any value from long term assets are free to an investor in a net net net net stocks will usually be reassessed by the market and priced closer to their true value in the short term long term however net net stocks can be problematic the formula for net current asset value per share ncavps is according to graham investors will benefit greatly if they invest in companies whose stock prices are no more than 67 of their ncav per share and in fact a study done by the state university of new york showed that from the period of 1970 to 1983 an investor could have earned an average return of 29 4 by purchasing stocks that fulfilled graham s requirement and holding them for one year 2however graham made it clear that not all stocks chosen using the ncavps formula would have strong returns and that investors should also diversify their holdings when using this strategy graham recommended holding at least 30 stocks 3special considerationscurrent assets which are used in the net net approach are defined as assets that are cash and assets that are converted into cash within 12 months including accounts receivable and inventory as a business sells inventory and customers submit payments the firm reduces inventory levels and receivables this ability to collect cash is the true value of a business according to the net net approach current assets are reduced by current liabilities such as accounts payable to calculate net current assets long term assets and liabilities are excluded from this analysis which only focuses on cash that the firm can generate within the next 12 months 3criticisms of net netthe reason net net stocks may not be a great long term investment is simply because management teams rarely choose to fully liquidate the company at the first sign of trouble in the short term a net net stock may make up the gap between current assets and market cap however over the long term an incompetent management team or a flawed business model can ruin a balance sheet quite rapidly so a net net stock may find itself in that position because the market has already identified long term issues that will negatively affect that stock for example the rise of amazon com has pushed various retailers into net net positions over time and some investors have profited in the short term in the long term however many of those same stocks have gone under or been acquired at a discount the net net strategy of finding companies with a market value below its net net working capital nnwc cash and short term investments 75 of accounts receivable 50 of inventory total liabilities may be an effective strategy for small investors net net companies are sought after by day traders which may contribute to their rise in month to month valuation 