This is one of the strategies introduced by Benjamin Graham.
Net Net is based on Net Current Asset Value (NCAV):
NCAV = Current Assets - Total Liabilities
Classical Net Net requires market cap be at least 1/3 below NCAV. I require an extra safety, so my definition of Net Net is slightly modified.
A stock should be bought if ALL the following conditions are met:
Do invest more than 5% of portoflio into a single Net Net stock.
Consider selling when one of the following is true:
Unlike Graham and Buffet stated, I do not require to purchase Net Net stocks in group. Nowadays it's practically impossible to find 20 stocks that satisfy the mentioned above criteria.
However ignoring opportunities with such high odds on investor's side would not be absurd.
Instead of buying Net Net stocks in group I limit the risks by not investing more than 5% of my portfolio into a single Net Net stock.
Pay attention to what exactly current assets are. It's perfect if most of current assets are cash. Avoid investing if most of high portion of current assets are receivables that company can not receive or inventory that are very difficult to sell.
Read auditor's opinion about financial statements in 10-K to ensure information in balance sheet is reliable. Reject the investment idea if financial statement was not audited.
For non US companies: evaluate management reputation to determine if information they provide is truthful. Avoid investing in third-party countries where financial market are very badly regulated.