I can’t help but get excited when looking up cheap stocks.
With net nets, you associate it with Graham, don’t forget that Buffett was a prized student of Graham’s.
So it’s actually interesting to see a real example of Buffett’s Net Net Working Capital calculation to value Dempster Mill in 1961.
(see image below of how Buffett did it)
Rather than using the conventional NCAV method of current liabilities minus total liabilities, Buffett made adjustments to the balance sheet based on a quick fire sale valuation.
He discounted accounts receivables by 85%, inventory by 60% and prepaid expenses by 25%. By default, I use 75%, 50% and 0% respectively.
There’s much more to it than just a quick calculation, but cheap stocks like net nets are easier to analyze than the complex ideas where there are many scenarios to consider.
Wanted to share that with you before you dive into this weeks Old School curated links.
Old School Value Articles You May Have Missed
- How to Leverage Ugly Net Nets to Time the Market
- How to Analyze Receivables & Inventory
- Cash Flow Statement Competitive Advantages
What We’re Reading in the Media
- How Moats Make a Difference
- A Collection of Munger’s notable shareholder letters, articles and annual meeting notes
- The 1 Percent Rule: Why a Few People Get Most of the Rewards
- Why we think we are better investors than we are
- Fixed to Flexible. 4 simple lessons about cost, price and margins
What is Old School Value?
Old School Value is a suite of value investing tools designed to fatten your portfolio by identifying what stocks to buy and sell.
It is a stock grader, value screener, and valuation tools for the busy investor designed to help you pick stocks 4x faster.
Check out the live preview of AMZN, MSFT, BAC, AAPL and FB.