Great discussion on net-net's here by Jon Heller. You have to scroll down a good ways on the page to the 18th of December and go to the bottom of the page and click play on the audio bar

Long analysis of potential deep value stock DryClean USA DCU. I briefly looked at DCU maybe a year or two ago and passed on it. It's actually smaller than a lot of Net-Net's I like to look at.

Since I've been looking at stocks in net-net territory the past year or two there are some things I have noticed. The ones I've seen that tend to do well and I can spot fairly easy are companies that have suddenly gotten this cheap and have average to above average businesses. Spartan Motors when I found it some months ago was once a consistently profitable company. Finish Line etc, the list goes on.

There are way more net-nets now and I think buying a huge basket of profitable and non-profitable ones should easily beat the market. However, if the market is down say 10% next year and the net-net's are down 8% I see this as a bad thing. They very well could do fantastic while the market falls to though. For a lot of people loosing money is fine as long as you "beat the market" but to me negative returns are a sign that the strategy and plan isn't working. What if the market is down 7 out of the next 10 years? From a lot of the net-net's I've seen over the past couple years I think it is a workable plan to be a stock picker in them and generate big returns especially if done with leverage and call options.

full disclosure: no position in any stock mentioned