How can the Net-Net Price be more than the Enterprising Price?


Is Key Tronic Corp (KTCC) a good example of what Graham refers to as a cigarette butt company? It appears that the actual intrinsic value of KTCC is 6.90 and the last close is 4.09 which is 41% below the actual intrinsic value. I'm used to trying to buy in at 30% below Graham's Defensive Price as encouraged to do so by "The Intelligent Investor" but 41% below the actual intrinsic value seems like quite an extraordinarily good opportunity.

My question is mostly why is the "Enterprising Price" of 1.13 less than the Net-Net Price of 6.90? I thought the Defensive Price was the most liberal judgments of a stock's value, the "Enterprising Price" somewhat less demanding and therefore should only be purchased if the price is significantly lower than the Defensive Price, and the "Net-Net" having even
less expectations of it and therefore should be purchased only if it is super dirt cheap which I would think would be even less than the "Enterprising Price," but in this case the "Enterprising Price" is higher (6.90) than the Net-Net Price. I think I saw this in another case as well. Thank you for any clarification on this situation. I hope you are enjoying your weekend. :)

Stocks Discussed: 
Key Tronic Corp (KTCC)

Dear Linus Christopher,

Thank you for your forum post!

There is no reference to the cigar-butt approach in Graham's own books. Buffett does refer to it in his 1989 Letter to Shareholders, but he doesn't give any specific definition for such stocks; other than that they would be characterized by a low market price.

"If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit."

However, the general consensus seems to be that cigar-butt investing refers to what Graham called the Net Current Asset Value strategy; and Key Tronic Corp (KTCC) does meet the criteria for the NCAV strategy.

You're also correct in that the Defensive Price (Graham №) is generally higher than the Enterprising Price (Serenity №), which in turn is usually higher than the NCAV Price (Net-Net).

However, all three prices are calculated using different methods and this is a unique case where a low recent annual EPS has caused the Enterprising Price (Serenity №) to become lower than the NCAV Price (Net-Net). The Defensive Price (Graham №) is not affected as much since the Defensive Price (Graham №) calculation uses the average EPS of the last three years.


I don't know how to say this without sounding flowery or insincere, but I am absolutely so impressed with your consistent patience and thoroughness and clarity of responses to my questions. You are obviously a brilliant person with an incredible grasp of understanding of Benjamin Graham and now I see, even of Warren Buffett. Thank you! Thank you for your help in pursuing my own version of acting on the advice of Benjamin Graham. I am just today finishing listening to "The Intelligent Investor" for a second time on I am having a great time. Your software program here is making this possible in a much more time-saving way.

Dear Linus Christopher,

Thank you for your kind words and your patronage!

trying to buy in at 30% below Graham's Defensive Price as encouraged to do so by "The Intelligent Investor"

This topic is discussed in more detail at Did Benjamin Graham suggest that investors pay 30% or less of the Defensive Price?

Graham Resources