Net net stocks

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Hitmonchan
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Net net stocks

Post by Hitmonchan » Tue Jan 08, 2019 11:41 pm

I am new to investing and have read a variety of books so far ranging from Graham to Bogle. Reading all of these convinced me that an indexed three fund portfolio is ideal. Recently, though, I discovered a site called netnethunter.com which says you can get 10-25% above market returns by following traditional graham techniques and buying incredibly cheap assets below net current asset value. These used to be availible in the US but are now mostly availible abroad. Reading through all of these articles, everything makes sense on the site and he seems to be following Graham fundamentals. Even Buffet slightly mentioned that he might buy these cheap stocks if he was managing small sums. The thing that most appeals to me in these techniques is that they are only good for small sums (under 10 Mil.). What are your opinions on this technique and website. Thanks.

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David Jay
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Re: Net net stocks

Post by David Jay » Wed Jan 09, 2019 8:15 pm

Welcome to the forum.

In general, Bogleheads subscribe to Jack Bogle’s advice to “buy the haystack” - that is - do not try to find individual great stocks but rather purchase broad-based index funds and accept the performance of the market. Here is a summary of our philosophy: https://www.bogleheads.org/wiki/Boglehe ... philosophy

This is likely why you have not received a reply before mine - I doubt that anyone on this forum knows anything useful about netnethunter.com

The problem with Graham style value investing is that it takes a lot of time and research. Most of us individual investors have jobs and families and are not able to make the necessary time investment. For the individual investor, the person on the other side of the trade is likely a professional with a full research department behind them.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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nisiprius
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Re: Net net stocks

Post by nisiprius » Wed Jan 09, 2019 8:23 pm

How did you happen to discover this site? It doesn't get a lot of traffic.

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Rick Ferri
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Re: Net net stocks

Post by Rick Ferri » Wed Jan 09, 2019 8:35 pm

These [cheap stocks] used to be available in the US but are now mostly available abroad.
I want to make sure I understand. You're saying this website is making the argument that it's as hard as heck to pick winning stocks here in the US where we live, but easy to pick winning stocks in foreign markets we know nothing about. So, the less we know, the better the odds of picking winners. Did I get that right?
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

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Nate79
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Re: Net net stocks

Post by Nate79 » Wed Jan 09, 2019 8:49 pm

Awesome. Where do I sign up? Is it free? Beating the market is no joke and this sounds pretty simple.

........
:oops:

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bottlecap
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Re: Net net stocks

Post by bottlecap » Wed Jan 09, 2019 9:19 pm

Benjamin Graham is not a secret, domestically or internationally.

Not to knock him, but if his methods could return "25%+ yearly returns" in any market consistently, don't you think everyone would be doing it?

And who would be letting every one else in on this secret?

There are a million websites out there that will provide you with the promise of out-sized returns - for a subscription price. I've never met or heard of anyone who actually made their millions on them.

Yet, on this "free" forum, there are a bunch examples of people who have made their millions indexing.

I'm not convinced you're convinced, even though you say you are....

JT

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Hitmonchan
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Re: Net net stocks

Post by Hitmonchan » Wed Jan 09, 2019 10:44 pm

I stumbled across this site after reading something on reddit about net net stocks. No idea how I wandered over to that topic.

Thanks for all the responses guys. Yeah it makes sense if anybody was making amazing returns to why they would provide to information to others at such a nominal fee. I will continue to be wary of sites like these. If anybody had any other comments on this technique of investing or this site I would be happy to hear it.

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Hitmonchan
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Re: Net net stocks

Post by Hitmonchan » Wed Jan 09, 2019 10:48 pm

Also to summarize, i believe he is saying that the US market is too efficient to buy stocks under net current asset value (the few that are tend to be chinese scams or something like that). But abroad where I assume the markets aren’t as efficient, there are many more opportunities. Essentially, he is using Graham but his saying is that there are a lot of other things to consider when buying these types of companies (e.g avoid chinese cause of scams, avoid exploration companies cause of high cash burn through, etc.) and thats what this site helps clean up for you. I assume he isn’t hiding this cause he can’t invest all his money in these stocks anyways so might make a buck helping others do so. But I might very well be wrong.

phantom0308
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Re: Net net stocks

Post by phantom0308 » Wed Jan 09, 2019 10:55 pm

This is called fundamental analysis.
If you read “A Random Walk Down Wall Street” there’s an entire chapter devoted to fundamental analysis and its shortcomings.
Cool name btw :beer

hohum
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Re: Net net stocks

Post by hohum » Thu Jan 10, 2019 2:15 am

I invested in net-nets back in 2001-2002 when they were briefly available in the US market.

High bid-ask spreads. Very little trading volume. Tons of tracking error.

So basically if a backtester says the gain for a basket of stocks for the year was 30%, maybe the gain was actually 12% when you account for getting killed on the spreads and not being able to buy the one stock that tripled because there was no volume.

It's a tough game. It's also not an efficient market, so someone with the right skills (accounting and trading) probably can make good returns. But it wouldn't be investing, it would be more like running a trading business and would take up a lot of time.

I don't think you can make 25-30% a year blindly buying a basket of net-nets that a screener picks for you.

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Re: Net net stocks

Post by msk » Thu Jan 10, 2019 3:51 am

David Jay wrote:
Wed Jan 09, 2019 8:15 pm
The problem with Graham style value investing is that it takes a lot of time and research.
I can vouch that this approach can work in very tiny, immature markets with lots of homework. Over 3 to 4 years I invested some $800k in an obscure stock. Started small and got bolder as the metrics (15+% annual growth in net income but P/E < 7) persisted at being very attractive, just like for Graham and Buffett in olden days. Another 3 to 4 years later I did cash out a net profit of some 2.5 million $, while having collected a dividend yield of 5% p.a. over the years. All markets eventually mature and become efficient. In efficient markets the most sensible thing is to buy the entire market, otherwise it's just gambling. Tales of having made a few million on AAPL, etc. are nothing more than accidents for the average Joe. The average person is loathe to put a major fraction of his net worth into one stock. That's why I went into that stock slowly. But major markets do not afford you the time to study, contemplate and add to your investment. You buy AAPL (I did). It shoots up 35% then falls 10% and you sell. So your $50k initial investment netted you some $12k. Big deal. Makes you happy, but then AAPL goes up another 100%... You never did bet half of your portfolio on AAPL. Dang!

jminv
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Re: Net net stocks

Post by jminv » Thu Jan 10, 2019 7:42 am

I did net nets earlier in the 2000s and earned some alpha doing it. All the net nets I did were overseas, never found a US one I was interested in which as another poster mentioned, is not by accident. The major issue with them is that most of net nets are actually trash. They are net nets for a reason, ie, shareholders expect management to continue destroying value which is why they trade below liquidation value. Since most of net nets are trash you have to believe that you will make out in the end by constructing an 'index' of them and the winners will compensate the losers and also be able to take the volatility associated with it. Or you think you have some edge and that you can identify more of the net nets that could rebound, aquired, or be quickly liquidated. Often that edge doesn't exist and it's actually luck. They also tend to be small, thinly traded companies and there can be a spread issue.

As for the site, he says he can't construct his results before IB (he could, he can pay an accountant to do go through his previous brokers statements and certify it). What he could have done is opened a number of IB accounts and put a number of different portfolios in each. Then after 3 years he reports the winning portfolio and sells a newsletter based on it (this sort of strategy happens often). Or the IB portfolio selection was after the fact since he already admitted to modifying parts of the statements (to add benchmarks, remove personal info, etc). Or he's telling the truth and was just 3 years lucky. A last thought could be that he wants out of the market and wants to drive up the prices of thinly traded securities before he does so, hence the newsletter. A last charitable suggestion is that he could also have an edge and wants to further increase that edge by having newsletter readers buy thinly traded stocks as well. That would be a smart move. I would be very skeptical buying stocks based on a newsletter.

Topic Author
Hitmonchan
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Re: Net net stocks

Post by Hitmonchan » Thu Jan 10, 2019 10:23 pm

Wow guys. Thanks a lot for all the advice. Especially from those who have experience trading net nets. It really helped me show how hard this thing was (not something mentioned on the website).

quantAndHold
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Re: Net net stocks

Post by quantAndHold » Thu Jan 10, 2019 11:33 pm

Net net investing used to work back before computers. People could dig through company reports and actually find something nobody else knew about. With computers and the internet, what you know is the same thing as what everyone else knows.

The last time I ran a screen looking for net nets in the US market, there was exactly one. It was a company on the verge of being delisted because of financial shenanigans.

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