Ben Graham, oft considered the father of value investing, found that buying companies trading at a 33% discount to their Current Assets minus Total Liabilities offered investors great returns. The idea is that even at liquidation the investor will get more than his investment, but chances are things will turn around before that's required. For many years, stocks trading at such discounts were near impossible to find in North American markets. Today is a different story, however, as fear has driven the market to such levels that once again stocks such as these exist in droves.

But not all such companies are worth investing in. If the company is burning its assets due to floundering operations, well its liquidation value won't be worth much at all! Consider Shermag (SMG), a furniture manufacturer and distributor. Last year, it had current assets of $48 million and total liabilities of $36 million, yet it was trading at a market cap of just $6 million.

Great value? Hardly not. The company has lost about $15 million per year for the last three years. As it burns through its assets in this manner, it quickly erodes any balance sheet value it appears to have.

When looking through net-nets, be sure to keep in mind that not all of them offer great value. It takes patience and an understanding of the underlying business to ascertain whether you've found a diamond in the rough.