Benjamin Graham made his career finding them. Warren Buffett called them the most reliable source of investment returns he ever found. And virtually every serious value investor has, at some point, asked the same question I asked when I first discovered them: why isn’t everyone doing this?
Net-net stocks, companies trading below their net current asset value, are one of the most empirically validated strategies in the history of investing. The academic literature is clear: over long periods, stocks trading below NCAV have generated exceptional returns. The problem, as every practitioner quickly discovers, is finding them.
In 2026, are Graham’s net-net criteria still findable? The honest answer: yes, but you have to look harder and in less comfortable places than most investors are willing to go.
Key Takeaways
- Net-net stocks trade below net current asset value (NCAV: current assets minus all liabilities divided by shares outstanding).
- They were abundant in Graham’s era and still exist today, primarily in micro-caps, neglected sectors, and during periods of market stress.
- In 2026, genuine net-nets are concentrated in micro-caps (under $50M market cap), OTC markets, and certain international ADRs.
- The strategy requires rigorous quality filters to avoid value traps. Not every net-net is a bargain. Even then, extreme patience is required.
- Position sizing and diversification are critical because individual net-net stocks carry significant business risk.
What Is a Net-Net Stock? The NCAV Formula Explained
The concept comes directly from Benjamin Graham’s Security Analysis and The Intelligent Investor. Graham observed that in truly distressed or neglected markets, you could occasionally buy a dollar’s worth of liquid assets for less than a dollar with the ongoing business thrown in for free.
The calculation is straightforward:
Net Current Asset Value (NCAV) = Current Assets − Total Liabilities
Then divide by shares outstanding to get NCAV per share. A stock trading at a meaningful discount to NCAV (Graham’s rule of thumb was two-thirds of NCAV or less) was, in his view, a statistical bargain regardless of the underlying business’s earnings power.
The elegance of the approach is that you’re not paying for future earnings, management execution, competitive moat, or any other uncertain forward-looking factor. You’re buying liquid assets at a discount and getting the business for nothing. Even if the business earns nothing, you’re protected by the liquidation value of the current assets.
The key distinction from simple book value investing is that NCAV deliberately excludes long-term assets. Fixed assets such as property, plant, equipment are excluded entirely because in a distressed liquidation scenario, those assets often sell for far less than their balance sheet values. NCAV is the conservative floor. It’s the answer to the question: what would shareholders receive if this business were wound down and all assets sold at or near their stated values?
For a deeper breakdown of how margin of safety applies here, see my piece on understanding margin of safety.
A Brief History: Why Net-Nets Were Common and Then Disappeared
Graham was developing his framework in the 1930s, in the aftermath of the worst financial collapse in American history. The 1929–1932 crash had destroyed equity values across the board, and many companies were genuinely trading below their liquid asset values because the market had simply given up on equities as an asset class.
Through the 1940s, 1950s, and into the 1960s, the inefficiencies persisted. Information was slow to disseminate. Analysis was manual and time-consuming. Individual investors dominated institutional ones. In that environment, Graham and his students (including Buffett) could find hundreds of qualifying net-nets at a time.
By the 1970s, the landscape had begun to change. Institutional investors grew. Information became more accessible. Academic finance was producing research that gradually arbitraged away the most obvious mispricings. By the time Buffett transitioned from pure Graham-style net-nets to the Munger-influenced quality compounders, it was partly because the net-net universe had shrunk dramatically in the US market.
This is why when Buffett said he made his best returns using Graham’s approach, he was describing a specific historical moment that has not fully repeated in large-cap US equities since.
But “not in large-caps” is not the same as “gone entirely.”
Where Net-Net Stocks Exist in 2026
Here’s my honest assessment of where the opportunity lives today.
Micro-Caps and Nano-Caps
The overwhelming majority of findable net-nets in the current US market are in companies with market capitalizations below $50 million, often well below. At this size, institutional ownership is negligible, analyst coverage is essentially nonexistent, and liquidity is low enough to deter most professional investors. These structural features create the information asymmetry and neglect that can sustain a below-NCAV valuation.
I’ve written about the dynamics of small-cap value investing at length; the liquidity premium and neglect premium that can generate excess returns for patient individual investors willing to do the work. Net-nets in the micro-cap universe are the most extreme expression of that dynamic.
The trade-off is real: very small companies carry genuine business risks. A $15 million market cap company trading below NCAV may be cheap for good reason: deteriorating revenues, a product line facing obsolescence, a customer concentration issue, a management team that has stopped being a good steward of capital. The analytical work required to distinguish a genuine net-net bargain from a declining business is substantial.
OTC Markets and Pink Sheets
A significant portion of genuine net-nets in the US trade on OTC markets rather than major exchanges. These companies often have limited reporting requirements, lower trading volumes, and wider bid-ask spreads. For investors willing to accept the liquidity constraints and do thorough due diligence, the OTC market is one of the last reservoirs of genuine statistical undervaluation in US equities.
The practical challenge is execution: buying and selling meaningful positions without moving the market against yourself is harder in these names. Position sizing discipline is critical. I do not invest in OTC markets or on pink sheets due to lack of regulation, but if you are able to spend time and effort required, this could be very productive hunting grounds for extreme value including net-net stocks.
Neglected Sectors During Market Stress
Net-nets tend to cluster in sectors that have experienced sustained investor indifference or acute distress. In recent years, pockets have appeared in:
- Legacy media and print publishing businesses
- Certain retail sub-sectors
- Some regional and community banks at particular points in the rate cycle
- Small industrials facing cyclical headwinds
These sector-specific opportunities tend to be more temporary. As the sector stabilizes or the stress resolves, valuations recover. But for investors watching these areas systematically, the windows can be meaningful.
International ADRs and Smaller Foreign Listings
Japan has been a well-documented hunting ground for net-nets for years. The combination of post-bubble balance sheet conservatism, substantial cash hoarding, and historically low corporate governance standards created a persistent pool of below-NCAV companies. The activist pressure and governance reform movement in Japan has reduced but not eliminated this.
Other markets such as South Korea, certain European small-caps etc. have periodically offered genuine NCAV opportunities for investors willing to accept currency and governance risks alongside the statistical cheapness.
The 2025–2026 Market Environment
The overall US equity market in 2025–2026 has not been a particularly fertile environment for net-net hunting in broad terms. Valuations across most sectors have been elevated by historical standards, and the post-pandemic liquidity environment drove capital into even obscure corners of the market. However, this macro picture masks significant dispersion.
Sectors experiencing structural change: legacy media, certain retail formats, some manufacturing businesses facing global competition, have continued to produce pockets of deep undervaluation. Micro-caps have underperformed large-caps for an extended period, which has concentrated statistical cheapness at the smaller end of the market capitalization spectrum.
Tariff uncertainty and trade war dynamics in 2025–2026 have created additional stress in certain manufacturing and import-dependent sectors. For patient investors, stress-induced price declines in fundamentally sound businesses are exactly the kind of opportunity Graham described. For overleveraged businesses caught in the crossfire, the same stress is a genuine impairment of value rather than a temporary market overreaction.
Distinguishing between those two scenarios is the work.
How I Evaluate a Potential Net-Net Today
Finding a stock trading below NCAV is the beginning of the process, not the end. Here is how I think through whether a particular net-net is a genuine opportunity or a trap.
Step 1: Verify the current asset quality. Not all current assets are equally liquid. Cash and equivalents are worth face value. Marketable securities are close to face value. Receivables require scrutiny: are they collectible? Are there concentration risks? Inventory is the most uncertain component. At what discount to stated value would it actually liquidate? I apply haircuts to inventory and receivables before accepting the NCAV calculation at face value. You can choose the discount factors, but conservative numbers are the best.
Step 2: Assess the burn rate. A company trading below NCAV that is burning through cash is destroying the very margin of safety I’m counting on. I want to see either positive operating cash flow (rare in deep distressed situations) or a low enough burn rate that the discount to NCAV more than compensates for the erosion over my expected holding period. Even seasoned value investors often ignore the burn rate. Burn rate often explains why the stock is trading below the NCAV. The market may be very rationale.
Step 3: Look for a catalyst. Graham’s classic net-net approach was often purely statistical. Buy a diversified basket and wait. This can work, but the risk of individual position failure is real. I prefer net-nets where there is some identifiable catalyst: asset sales, a strategic review, a shareholder activist, insider buying, a pending tender offer, or a clear path to profitable operations. The deep value stock catalysts piece covers this in more detail. Additionally, building a diversified basket of net-nets is close to impossible in today’s day and age of well informed investor.
Step 4: Run the Piotroski score. Even in a net-net context, a very low Piotroski F-Score is a warning signal. A score below 3 in a net-net tells me the financial deterioration is happening faster than I want, and I need to be very confident in my NCAV calculation and burn rate estimate.
Step 5: Check for value trap characteristics. A business with no competitive position, declining revenues, cash-consuming operations, and hostile or incompetent management can trade below NCAV indefinitely. Statistical cheapness without a path to value realization is just slow capital destruction.
Diversification in a Net-Net Portfolio
This is non-negotiable. In a single net-net position, the range of outcomes is wide: the stock could return to or above NCAV as the market recognizes the undervaluation, or the business could continue deteriorating until the NCAV itself erodes. No individual analysis is reliable enough to stake a concentrated bet on.
Graham’s original approach was to hold a diversified basket of 20–30 net-net stocks. The statistical logic holds: even if 30–40% of your net-nets are genuine business failures that never recover, the ensemble of positions tends to generate strong returns because the upside of the winners overwhelms the losses of the failures, provided you’ve bought at a genuine discount to liquidation value.
Today you may only find a few net-nets worth investing in. It makes sense to include net-nets in your otherwise diversified value portfolio that also invests in non net-net opportunities.
My deep value stock screening process article covers how I build and manage these kinds of diversified deep value positions.
Where to Screen for Net-Net Stocks
Finviz: Free screening with NCAV-based filters is possible but imperfect. You can filter for stocks trading below book value and then manually calculate NCAV.
TIKR and Koyfin: More granular balance sheet data that makes NCAV calculation faster.
Gurufocus and Screener.co: Both have dedicated net-net screens.
Stock Rover: You can filter for NCAV using equations if you are on a higher paid plan.
Manual work in SEC filings: For micro-caps and OTC stocks, the most reliable approach is pulling the 10-Q directly from EDGAR and calculating NCAV from the balance sheet yourself. Given the stakes, I consider this non-optional for serious positions.
For my subscribers in the Inner Circle, I include a watchlist of deep value candidates, including net-net screens, in my regular research process. When genuine below-NCAV opportunities appear in my screening work, members see them first.
The Honest Assessment
Net-net stocks in 2026 are not abundant. They require looking in less comfortable parts of the market: smaller, less liquid, less covered. They require more thorough individual analysis than a simple P/E or P/B screen. And they require the patience to hold positions while the market takes its time recognizing the undervaluation.
But they exist. And for the investor willing to do the work in the micro-cap universe and to diversify appropriately across positions the NCAV framework remains one of the most durable and empirically validated approaches in value investing. Graham was right in the 1930s. The principles haven’t changed. Only the places you have to look.
Photo by Alberto Bigoni on Unsplash
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If you want to go deeper (the full Inner Circle portfolio, the complete research reports, and the Kelly Criterion-based position sizing behind each holding) the Inner Circle membership is where that lives. Net-net stocks, when I find them, are one component of the deeper value framework I apply to the portfolio.
Disclosure: Nothing in this article constitutes investment advice or a recommendation to buy or sell any security. Deep value and net-net investing involves significant risks including potential total loss of capital in individual positions. Diversification and thorough due diligence are essential. Do your own research before making any investment decisions.
Shailesh Kumar, MBA is the founder of Astute Investor’s Calculus, where he shares high-conviction small-cap value ideas, stock reports, and investing strategies. He is also a strategy and operations consultant focused on measurable business outcomes
His work has been featured in the New York Times and profiled on Wikipedia. He previously ran Value Stock Guide, one of the earliest value investing platforms online.
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