A net-net that remains a net-net, i.e. the stock price has never traded above its net current asset value
Avoid Loss-Making Net-Nets
Losses give stocks a double whammy. Losses deplete retained earnings and eat into book value. Furthermore, loss-making stocks attract negative sentiment and in turn affect the P/B and P/NCAV valuation multiples accorded by the market.
Avoid Net-Nets Which Do Not Grow Their Book Value
If net-nets grow their book values, investors can earn decent returns, as long as stock prices grow at least in tandem with net asset value growth. We are positive on net-nets which grow their book value by growing their earnings, or through a mark-to-market process where their assets are restored to close to their intrinsic values on the books.
Avoid Net-Nets Which Do Not Pay Dividends
The stock market can stay irrational longer than investors can stay solvent. Dividends serve many purposes. Besides providing net-net investors with incentives to wait for the market to return to efficiency, they provide evidence of real cash, one of the key components of many net-nets. Moreover, huge dividend payouts by certain stocks are reasons for their net-net status, with dividends debited against retained earnings, thereby reducing book value.
Avoid Fraudulent Stocks
If the books are cooked, value of assets and earnings are not dependable, so the net-net case hardly holds water. Granted that most investors are not forensic experts, or for that matter have that level of information to make a judgment, the Beneish M-Score and James Montier's C-Score are examples of indicators which provide another level of security for investors.