How do you find good Net Net Stocks?

[Voodooking]

At the moment I am paying for a service which provides me with a shortlist of Net Net stocks every month. However, it is quite expensive.

 

I'm wondering what is your process and where do you start to look for stocks?

 

The service I use covers a few developed markets, but I'd like to start looking in all stable countries.

 

Where is the best place to look for lists of stocks trading below NCAV etc.?

 

Thanks in advance for your help.

[kab60]

I like finviz for screening. Free trial. And vardebyran blog by two swedish investors (one of them at least is on here - Jonas I believe). Their portfolio is public so you can track their latest buys. Very mechanical and rational approach.

[randomep]

 

 

 

This question comes up every few months. I used ft.com, they have the most comprehensive database of international stock data.  You can use their screener or I scrub the webpages....... its not easy because netnets are small companies are few sites have all the international stocks, large and small.

 

 

[Haasje]

Ruerd Heeg has a service which covers worldwide stocks with write-ups:

 

https://seekingalpha.com/account/research/subscribe?slug=ruerd-heeg

[oddballstocks]

Any screener...

[randomep]

Any screener...

 

If the screener has a database big enough. Most databases only cover the easily available data, which exist for most large companies, which is the opposite of what the poster is asking.

 

 

[oddballstocks]

Any screener...

 

If the screener has a database big enough. Most databases only cover the easily available data, which exist for most large companies, which is the opposite of what the poster is asking.

 

Depends on the quality of the screener.  I have a Bloomberg, so all global markets plus all US markets including pink sheets.  The only stocks excluded are non-filing dark pink sheet companies.  At that point the only way to get that data is manually, and that's why there's value in those stocks.

[Jurgis]

BTW, I mentioned this before, but another market inefficiency came recently to nanocap pink sheet no info stocks. Fido (and some other brokers?) no longer allow you to buy no info (and some "limited info"? not sure) pink sheet stocks. So I can no longer buy a few nanocaps mentioned on CoBF in the past. This could add to the opportunity for people enterprising enough to research such and buy them on any brokers that don't have this restriction.

 

Edit: The list changes quite a lot. Some companies are no-info and then they file quarterly/annual and become "Current Information" again. There might be opportunity to buy when they are "no-info" and sell when they are current when more market participants get access. I haven't done extensive research on that though, so YMMV.

[randomep]

Any screener...

 

If the screener has a database big enough. Most databases only cover the easily available data, which exist for most large companies, which is the opposite of what the poster is asking.

 

Depends on the quality of the screener.  I have a Bloomberg, so all global markets plus all US markets including pink sheets.  The only stocks excluded are non-filing dark pink sheet companies.  At that point the only way to get that data is manually, and that's why there's value in those stocks.

 

do you pay for Bloomberg?

[oddballstocks]

Any screener...

 

If the screener has a database big enough. Most databases only cover the easily available data, which exist for most large companies, which is the opposite of what the poster is asking.

 

Depends on the quality of the screener.  I have a Bloomberg, so all global markets plus all US markets including pink sheets.  The only stocks excluded are non-filing dark pink sheet companies.  At that point the only way to get that data is manually, and that's why there's value in those stocks.

 

do you pay for Bloomberg?

 

Yes, I have a few licenses since we have a product that runs on their platform (shameless plus trial keyword in signature).

[Brice]

This question comes up every few months. I used ft.com, they have the most comprehensive database of international stock data.  You can use their screener or I scrub the webpages....... its not easy because netnets are small companies are few sites have all the international stocks, large and small.

 

Here's the FT screener's webpage for those that don't have Bloomberg: http://markets.ft.com/data/equities?expandedScreener=true

I use it myself and have found it reliable.

[IntrinsicEdge]

Gurufocus has a nice screener.  They even have a predefined "Ben Graham Net-Net" screen.  Looks like you'd have to pay for a membership to get full access to it but it may be less expensive than paying for a service.  The screen does include OTC stocks.  Also,  if you are interested in other countries they do have add-on subscriptions for other countries (Asia, Europe, Canada, UK, LatAm, Africa). 

[Oreo]

I'm going to get hated for saying this but I think you can't beat the computers by investing like a computer. IMO this is a massive waste of time. In the past, it would lead you to invest in piles of crap like for-profit education, etc. For some weird reason, screening works better for identifying high-quality businesses:

- high margins

- high asset turnover

- low working capital intensity (or even better, negative working capital)

 

It's also (IMO) periodically useful to screen for stuff that just has low market cap, low trading liquidity and little/no analyst coverage. But not specifically net-nets.

 

High-quality AND/OR small, not piles of crap. So personally, I would drop the screens almost altogether because most people use them in a manner that ends up costing them, not helping them.

[Oreo]

P.S. I know that I didn't answer the OP's question. I'm just a guy who rants.

[Brice]

It's also (IMO) periodically useful to screen for stuff that just has low market cap, low trading liquidity and little/no analyst coverage. But not specifically net-nets.

 

High-quality AND/OR small, not piles of crap. So personally, I would drop the screens almost altogether because most people use them in a manner that ends up costing them, not helping them.

 

How do you tackle the overwhelming size of the search space without a screener to reduce it?  There are a lot of US listed equities but you can at least tackle it by industry.  Internationally?  Each geo is going to have a different dynamic.

[LR1400]

I'm going to get hated for saying this but I think you can't beat the computers by investing like a computer. IMO this is a massive waste of time. In the past, it would lead you to invest in piles of crap like for-profit education, etc. For some weird reason, screening works better for identifying high-quality businesses:

- high margins

- high asset turnover

- low working capital intensity (or even better, negative working capital)

 

It's also (IMO) periodically useful to screen for stuff that just has low market cap, low trading liquidity and little/no analyst coverage. But not specifically net-nets.

 

High-quality AND/OR small, not piles of crap. So personally, I would drop the screens almost altogether because most people use them in a manner that ends up costing them, not helping them.

 

So, what do you use and how do you use it?

[InspireByReason]

I'm going to get hated for saying this but I think you can't beat the computers by investing like a computer. IMO this is a massive waste of time. In the past, it would lead you to invest in piles of crap like for-profit education, etc. For some weird reason, screening works better for identifying high-quality businesses:

- high margins

- high asset turnover

- low working capital intensity (or even better, negative working capital)

 

It's also (IMO) periodically useful to screen for stuff that just has low market cap, low trading liquidity and little/no analyst coverage. But not specifically net-nets.

 

High-quality AND/OR small, not piles of crap. So personally, I would drop the screens almost altogether because most people use them in a manner that ends up costing them, not helping them.

 

If you read anyone who actually implements a Net-Net strategy you'll soon figure out that there is still analysis that goes on. Net-Net's are usually not the kind of companies you want to just willy nilly purchase. Cheap stocks are usually cheap for a good reason, take a good hard look to make sure it's not a value trap.

[frommi]

If you read anyone who actually implements a Net-Net strategy you'll soon figure out that there is still analysis that goes on. Net-Net's are usually not the kind of companies you want to just willy nilly purchase. Cheap stocks are usually cheap for a good reason, take a good hard look to make sure it's not a value trap.

 

First i must admit that i only worked on my netnet strategy for 2 months, but from what i read so far the only real things you can check is if the numbers are correct, not outdated and if there are no off-balance sheet liabilities. With a netnet strategy its very hard to filter out "value traps" without limiting your returns. At least i know of no study that would have found something that does that successfully. Only investing in netnets with positive earnings, dividends, only in certain industries etc. reduces returns. Hand picking only the ones that you "like" is probably the best approach to destroy your returns. You can only generate alpha when you overcome the mental hurdles that are "normal" for a human being. In that regard there is no such thing as an a priori definable "value trap", only an insufficient margin of safety, i.e. a "bad price".

 

What i know works is investing in netnets with insider ownership, a high discount to ncav and avoiding stocks where the main assets are in china. Avoiding china is debatable because a lot of the fraudulent stocks are probably gone already, but for now i will stick to that. The discount to ncav is the main driver of returns so it should have the highest priority.

 

There is a study from Tweedy Browne that tested ncav returns from 1970-1981 where debt/equity < 20% had a positive effect, but that was with interest rates far higher than currently. I doubt that that increases alpha nowadays and have read about a backtest in the recent past where that was proven to have no big effect on returns anymore.  (but can`t remember where that was)

 

I do something that i have not seen tested but what i believe makes sense and that is to calculate the burnrate over the last 2 years and adjust the ncav accordingly to have a rough estimate of where ncav may be in 1-2 years. If it still trades at a huge discount to that estimate its a buy. (That filters out most biotech or exploration stocks because a lot of them just need some quarters to burn through their cash.) I would really love to see a study that does something similar since i am very unsure if it increases returns.

 

I use

 

http://fintel.io/screen/basic-ncav-screen

http://stock.screener.co/

http://www.netnethunter.com/

http://www.oldschoolvalue.com/stock-screener/net-net-working-capital-nnwc-stock-screen.php

http://seekingalpha.com/ (I follow Nicholas Bodnar, Ruerd Heeg, Jan Svenda, Alkaline Capital, Countercontrarian). I have set up a portfolio of ncav stocks here, often there are articles for them giving you new ideas/authors to look at.

 

Blogs in my netnet reading list:

 

https://deepvalueideas.com

https://alphavulture.com

http://bargainhunterblog.com

http://www.oddballstocks.com

https://tesoptimalvalueinvesting.wordpress.com

http://www.valueinvestingblog.net

http://stocksbelowncav.blogspot.de/

http://www.barelkarsan.com

[bennycx]

My experience has been that if I filter out the ones that I "like", i.e. based on the ones which are highly unlikely to be fraudulent, company is shareholder friendly, low leverage and debt, etc, I am able to avoid many value traps and get mostly positive to very positive returns. I may miss out on some, but at least I know my downside is fairly limited. I have never lost more than -30% MTM in any of my net-nets before and my highest returns are in the range of +100% and the lowest around -10% but my sample size is small ~10 stocks.

[frommi]

My experience has been that if I filter out the ones that I "like", i.e. based on the ones which are highly unlikely to be fraudulent, company is shareholder friendly, low leverage and debt, etc, I am able to avoid many value traps and get mostly positive to very positive returns. I may miss out on some, but at least I know my downside is fairly limited. I have never lost more than -30% MTM in any of my net-nets before and my highest returns are in the range of +100% and the lowest around -10% but my sample size is small ~10 stocks.

 

When you really like a business trading as a netnet you are surely not wired like a "normal" human anymore.  ;D

But good to hear that it works for you.