Net Nets : a Value strategy

Interesting exercice!
I looked up the financial reports of the Top20 of the list, but so far I did not find a Net Net. I will keep you updated for the reminding stocks of the list :slight_smile:

does NCAV<0 mean, that in case of the company closes, you’d have to pay the remaining debts?^^

The Net Current Asset Value is defined as : Total Current Assets - Total Liabilities.
Long term assets (factory, machinery, goodwill…) are not taken into account.
So a negative NCAV just means that the company has much more debt than cash, inventory and account receivables.

In any case, the basis accounting equation is :
Total Assets = Total Liabilities + Equity. The worst case for a shareholder is that his stock is worth 0. It is not possible to have to pay the debt :slight_smile:

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A new Net Net example unraveled :blush:

I bought Infosonics Corp (ticker : IFON) when it was trading at 42 cents per share, i.e 35% under its Net Current Asset Value.

Today the stock finally woke up, and I could sell it at 0.75 cents per share , for a nice gain of 78% in two months…

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Wooo wooo woo!!
Congrats on that move!! 78% in 2 months!!
What was the catalyst that made the stock move in that way?

Any other Net NEts on your portfolio waiting to explode?

The catalyst might be this announcement :

https://www.streetinsider.com/Corporate+News/InfoSonics+(IFON)+to+Acquire+Cooltech/13130627.html

Sometimes just a little bit of coverage makes analysts realize the stock is underpriced. But at a 10 millions market capitalization, I don’t expect analysts to cover this kind of stock anyway :smiley:

Regarding my other net net stocks, I have already talked about them in the mustachian portfolio thread, but it can be a good opportunity to make a 1 year assessment (as an exercice, I ll let you calculate the Net current asset value of these stocks) :

-Rubicon Technology (RBCN): bought in july 2016 at 6.7USD, reinforced at 5.2 USD (for an average entry price of 5.8 USD) : currently quoting at 8.12 USD : +39%
-Emerson Radio (MSN) : bought in july 2016 at 0.655 USD, currently at 1.28 USD : +95%
-Gigamedia Ltd (GIGM) : bought last year as well at 2.5 USD, currently at 3.03 USD : +21%
-Richardson Electronics (RELL) : bought in July 2016 at 5.25 USD, quoting now at 5.94 USD : +13%
-Velcan SA (ALVEL): bought at 10.64 EUR, now at 11.28 EUR : +6%
-Gravity Corps (GRVY) : bought in august 2016 at 4,32 USD, sold in November 2016 at 11,6 USD : +160%
-Zwalen und Mayr SA (ZWM) : bought three months ago at 178 CHF, now quoting at 230 CHF : +29%
-Sear Hometown and Outlet Stores (SHOS) : bought at 2.50 USD, currently at 2.25 USD : -10%
-Sanshin Electronics (TYO:8150) : bought in September 2016 at 906 JPY, currently at 1428 JPY : +57 %
-Nippon Antenna (TYO:6930) bought in September 2016 at 537 JPY, now at 576 JPY : +7%
-Nichiwa Sangyo (TYO:2055) : bought in September 2016 at 196 JPY, now at 241 JPY : +22%
(Note that in the meantime the Japanese Yen went down -10% against the Swiss Franc).
-Asia Pacific Wire and Cable (APWC) : bought in 2015 at 1.75 USD, now at 3 USD : +71%
-Deswell Industries (DSWL) : bought in 2015 at 1.8 USD, now at 2.8 USD : +44%

I consider that everything I haven’t sold yet has still some room for upside potential.

So all in all, in the last two years, Net Nets have provided me very satisfactory results :slight_smile:

But I’d like to see their performance over a longer timespan, so I can draw a conclusion. I don’t forget that we are in a bull market…

@Julianek, Seems like went down again, you did well by selling it! :smile:
I red about this strategy and yous post on this. I really liked it, but seems quite time consuming and I haven’t allocaed time for this.

We should have a thread to discusse and share some ideas on this. What do you think?

Yep, it seems like there has been a big correction today. To be honest my target selling price was 0.63 USD, so when I saw yesterday that it has gone way past this limit I sold immediately.

Regarding the subject, we have already this thread to talk about Net Nets and value investing. Feel free to share your ideas as well. they’ll be more than welcome!

And finally, as you can see most of the stocks i have bought are US (although I know there are a lot as well in Japan), and, once I automated my program to screen through USD stocks for net nets, it takes me only 20 minutes a week to run the program and see if something has changed since last week. So all in all, it is not that time consuming :smiley:

Wow! That sounds great!

What do you use to automate the process? do you mind sharing?

Thanks!

My process is in five steps (I hope you have an IT background :slight_smile: ) :

1- First, you need an universe of stocks to look for. I got the list of all US stocks quoting on the New York Stock Exchange, the Nasdaq and the Amex from the excel files available here. So a first job is to import all the stocks tickers in a database.

2- Now I need a tool that will give me, for each stock, what is the latest price and the number of shares. For this, I have an engine that will, for every stock listed in (1), will connect to the Yahoo Finance API (exemple of code here and retrieve this data

3 - Now I need to calculate the net current asset value for each stock! For this, the SEC made available an API that allows you to download in a XML or JSON format, the latest financial statements of the companies. The doc is here. Ex : by calling the URL http://edgaronline.api.mashery.com/v2/corefinancials/ann?primarysymbols=MSFT&appkey={APPKEY}, you will get the financial reports of Microsoft in a format understandable by the computer. Note that you need first to register an application key before using the API. So the third job will call this API, download all financial reports, calculate NCAV = Total Current Assets - Total Liabilities, and store this value for each stock.

4 - Now that I have the Net Current Asset Value, the program use the number of shares it got in step (2) to calculate a NCAV per share. Now it compares this value to the current of the stock. If Price < 0.67 * NCAV/Share , then it is a Net Net candidate. From the list of 11 000 stocks I got in step (1), normally around 50 are Net Net candidates.

5 - Only at this stage I have manual work : I have a list of candidates, and I have to remove “false positives” : Chinese stocks (fake accounting), Biotech stocks (usually not earning anything)… From this list of 50 candidates, I usually find 10-15 genuine net nets.

I hope this post was not too much jargon :slight_smile: At the time it took me one week to code this tool in .NET, but now the process is mainly automatic until step 5!

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IB has some fancy portfolio building tools that I haven’t had a chance to look into. Any idea if you could use that to implement this strategy?

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Thanks for the process.
You have nailed down and simplified it quite well, congrats! :slight_smile:

I’ve never programmed in C# but looking at the code example you provided I guess I could do some experiments. hehe (one more gig for the list) 'till then I guess Net Nets will be on hold.

Keep us updated on any new findings

Cheers!

Ciao all,

using Julianek ideas I’ve built a simple tool on excel and I’m starting to look for net-nets. One “hit” is ROYT on NYSE. https://finance.yahoo.com/quote/royt?ltr=1

However, when I try to buy it on Swissquote I receive a link to the following page https://www.swissquote.ch/static/terms_conditions/terms_funds_other_e.html

It is about “investments funds not authorized in Switzerland”.

Any idea what this is?

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Hi Iamaneye,

Good catch. ROYT is indeed a Net Net based on its balance sheet.
I am not using Swiss Quote so I am not familiar with this message, but @mrs_oberland experienced the same issue lately in this topic..

From what I understand, this stock is a Trust : it is more kind of a fund that a company. Perhaps this kind of structure is indeed forbidden in Switzerland.
I am not really familiar with this type of structure, but I also found something strange in their income statement :

Income statement

I am wondering why, as soon as they earn a consistent revenue (their income was 257 million USD in december 2016), do they dilapidate it instantly in spendings (248 Million spending in the same period). Perhaps it is only a coincidence or a one-off event, but it would be worth checking that it is not due to the structure of the trust.

It’s not a net net - they have practically no cash or current assets. What they own is “financial interests” in oil fields, royalty contracts or some shit like that. It seems more like a plant/property/equipment item - book value reflects initial investment made, adjusted by depreciation, and bears little relationship to the real market value of these contracts which I guess is related to earnings - production volume x oil price. Oil has been going downhill and so has this stock.

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Too many unknowns indeed. I passed on this one.

Ciao all,

my net-nets strategy is taking shape. I currently have 8 stocks in the portfolio (sold CRDS yesterday with a 35% gain in one trading day!). Today I have found another small tiny candidate but I’d like to have the opinon of truer mustachians than me before committing: STRI (https://finance.yahoo.com/quote/STRI?p=STRI).

This one seems legit to me with good downside protection. The only “FAIL” I have in my checklist is the lack of a catalyst. What do you guys think?

You need to be holding for 6+ months to avoid exposing yourself to potential very steep capital gains taxes

That would be buy and hold an f’ing index fund, not mess with net nets and value traps. For the latter you probably want to join something like value investors club or seeking alpha

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Ciao hedgehog,

holding for more than 6 months is not an option when it come to net nets. I sell when the stock hits the sell price and I pay the taxes I have to pay. Obviously net-nets investing is not my primary way of investing. I have almost 80% of my capital invested in VWRL and I’m very happy to sit back and relax with it. 10% is cash and the other 10% is dedicated to some “non-true-mustachian” activites like net nets, crypto, p2p, options trading. All of this on top on 2nd and 3rd pillar of course. I feel that this asset allocation is rather conservative and it still allows me to enjoy the EOD trading that is an old passion of mine.

I understood that this thread is dedicated to learning about the net nets strategy and that’s why I’m posting here. Rest assured that I’m also checking seeking alpha but one doesn’t exclude the other in my opinion.

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Capital gains taxes, if they chose to levy them, will be on your whole portfolio. And they are very steep: your marginal income tax rate (up to 30-40%) + 10.25% AHV. Options trading as far as I see it is practically a guarantee that you’ll get shafted with CGT, so i wouldn’t recommend that. At least establish your own company to do trading on its behalf then, to eliminate tax uncertainty

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