What are the specific criteria for deep value investing and how does it differ from regular value investing?

Deep value investing is an extreme form of value investing that targets companies trading at very large discounts to fundamental measures — often companies facing severe distress, controversy, or neglect.

Quantitative Screens for Deep Value:

The Net-Net Criterion (Graham's Original Deep Value):

Net Current Asset Value (NCAV) = Current Assets - Total Liabilities

If market cap < NCAV, you're buying the company for less than its working capital alone, getting all fixed assets and intangibles for free.

Example — Whitmore Industrial Supply:

Whitmore trades at 26% below net current asset value — a classic deep value candidate.

How Deep Value Differs from Regular Value:

1. Uglier businesses: Deep value stocks are often in declining industries, facing lawsuits, or poorly managed
2. Value traps are frequent: Many cheap stocks deserve to be cheap
3. Portfolio approach required: Individual deep value stocks have high failure rates, but portfolios of 20-30 deep value stocks have historically outperformed
4. Longer time horizon: Catalysts may take 2-5 years to materialize
5. Higher volatility: These stocks can decline 30-50% further before recovering

CFA Exam Context: Deep value is discussed within equity investment styles. The exam tests whether you understand the risk-return tradeoff and can identify when deep value is appropriate versus when the low price reflects genuine fundamental deterioration.

Practice identifying value traps in our CFA equity question bank.