Returns to Buying Negative TEV Firms

Who doesn’t love the idea of buying something for nothing?

Jack and I were intrigued with the concept of something for nothing and took a shot at answering an interesting research question:

How do negative total enterprise firms perform?

In theory, a firm selling for a negative enterprise value is not possible because the seller is actually paying someone to take all their assets off their hands.

If you recall, total enterprise value (TEV) is supposed to represent the total cost an outside buyer would have to pay to acquire all assets of a firm–debt, equity, minority interests, preferred stock, etc–the whole enchilada.

We calculate TEV as follows:

  • market value of common equity
  • debt value at book value
  • minority interests at book value
  • preferred equity at book value


  • cash and cash equivalents at book value

Remember, we must minus off cash and cash equivalents, because immediately after purchasing all the firms assets we can take the cash out of the till and put it back in our pocket (assuming we don’t need any of the cash for working capital requirements–strong assumption, but what the heck).

In the preliminary analysis below we look at the universe of negative TEV firms through time and calculate the performance to an annually rebalanced strategy. We look at the full universe, the universe that boots the bottom 10% of market caps (NYSE breakpoint), and the universe that boots the bottom 20%.

Performance Recap:

The basic stats

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Here is a little analysis on various stress events

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and our favorite MBA 101 chart

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My main takeaway is these strategies are WILD and have pretty insane volatility.

get ready for some volatility!


You might be sitting there thinking, wow, all I gotta do is hold an equal-weight basket of negative TEV firms and I’ll compound like Warren Buffett, right?

The Bad News:

Here is a timeline of the number of opportunities that actually pop up over time.

A few key points:

  1. After you eliminate the micro-crap stocks, you end up being invested in a few names at a time (sometimes you go all-in on a single firm!)
  2. Sometimes the strategy isn’t invested.
  3. The amazing Bueffettesque returns for the “all firms” portfolio above are exclusively tied to micro-craps.

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If you want to buy cigar-butts, as defined by negative-TEV firms, you need to have some guts. You’ll also need to have a very limited capital base to work with or you’ll bounce yourself out of all the great returns associated with the smallest firms in the sample.

Hope you got a pair!

Good luck!


About the Author

Wesley R. Gray, Ph.D.Better known as "The Turnkey Analyst, Ph.D.", Executive Managing Member, Empiritrage, LLC, Assistant Professor of Finance, Drexel University’s LeBow College of Business, United States Marine Corps, Captain, Ground Intelligence Officer, Published author; featured speaker, author, and lecturer at numerous venues (top-tier universities, museums, radio, and television), Ph.D./M.B.A. Finance, University of Chicago Booth School of Business, B.S. The Wharton School, University of Pennsylvania, magna cum laude Wes' homepage is at all posts by Wesley R. Gray, Ph.D. →

Disclaimer: is not an investment adviser, brokerage firm, or investment company. The use of any information on this site does not guarantee performance. Past results are not necessarily indicative of future performance. Empiritrage and are both owned in part by Wesley R. Gray, Ph.D.