FRAMEWORKS / VALUE / DEEP VALUE (NET-NET)
LENS 01 · VALUE
Deep Value (Net-Net) framework, explained
IN THE TRADITION OF BENJAMIN GRAHAM'S SECURITY ANALYSIS AND THE DIVERSIFIED PRACTICE OF WALTER SCHLOSS
Deep Value (Net-Net) looks for companies whose market value is below a conservative estimate of their net current assets: current assets minus every liability. It is a statistical discipline. The companies it surfaces usually look distressed, because that is exactly what the screen selects for, and the filing read exists to test whether the assets are real and why the discount is there.
What it looks for
Discount to net current asset value, cash-burn ceiling, a going-concern operating business — not a shell.
Whether the assets are real and realizable, dilution and delisting risk, and reasons the discount is deserved.
The quantitative screen starts from net current asset value and the market value of the equity, then removes companies burning cash quickly and shells with no operating business. What survives is a list of operating companies priced below what their liquid assets alone would suggest.
The AI read then asks four questions of the filings: are the assets real and realizable, how long can the company fund itself, how much dilution is likely, and whether management’s incentives or any disclosed event bear on the discount. A discount that the filings explain, such as receivables that will not be collected, counts against the match.
Filings it reads
Every claim in a verdict cites one of these, by form, section and date. Anything they do not disclose is marked unknown rather than inferred.
| What is read | Why this framework reads it |
|---|---|
| 10-K: Business (Item 1) | What the company sells, to whom, and how it competes. |
| 10-K: Risk factors (Item 1A) | The risks the company itself says are material. |
| 10-K: MD&A (Item 7) | Management’s explanation of what drove the results. |
| 10-K: Financial statements and notes (Item 8) | The audited numbers the rest of the read is checked against. |
| Latest 10-Qs: financial statements, MD&A and risk-factor updates | The current balance sheet, since net current assets can move fast. |
| Proxy statement: executive pay and related-party transactions | Whether management is paid to preserve the assets or to spend them. |
| Form 4 insider transactions | What insiders have done with their own shares. |
| Schedule 13D and 13G filings, from the filing index | Whether large holders have disclosed a stake. |
| Shelf registrations on file | Whether the company has registered shares it could issue. |
What each verdict means
A verdict describes how well a company’s filings fit this framework, as of the filings read. It is never a prediction and never an action to take.
- GEMSTONE
- The filings support a discount to realizable net current assets, a funded runway and limited dilution risk.
- GEODE
- The discount is there, but the filings leave asset quality, runway or dilution mixed or unverifiable.
- SEDIMENT
- The discount is explained by the filings themselves, or the company’s survival or share count is at clear risk.
When the filings cannot support any verdict, none is issued: the company is shown as Not scored.
What this framework misses
- Net current asset value ignores the business’s earning power entirely, so a company can match while its operations keep shrinking.
- RockTurners computes it without subtracting preferred stock, which overstates the cushion slightly where preferred shares are outstanding.
- The tradition documents a diversified, multi-year workout horizon. A single verdict reads one company, not a basket.
Terms used here
Other frameworks in the value lens
This framework can be forked in the Strategy Lab. The value lens page compares it with the other frameworks in its lens, and the how it works page walks through a complete read. Framework titles describe the method; practitioner names appear only as attribution — no methodology here is endorsed by or affiliated with the practitioners named.