For many investors, the answer is elusive. They sort of know what a stock is but when pressed they don't fully understand what it is they're buying when they decide to invest. Usually they respond with something like: "I'm buying a company." And that's right. But specifically, here's what they're buying.

When you purchase a stock, you buy two things: a percentage of the Book Value of a company and a percentage of earnings in the future. Let's look at Book Value.

We'd all like to know the secrets for buying winning stocks. Here's the first one: there is no secret. No one formula and certainly no one data point is THE answer to finding the next hot stock. That isn't how investing works. But there are certain numbers that will help increase the odds of finding a stock that may go up. Here are some that will help.

Earnings. In real estate, the three most important words are location, location, location. In successful stock investing, they are earnings, earnings, earnings. Ultimately, all investing comes down to earnings. Earnings are what investors own. They contribute to Book Value (see below). They are the reason anyone invests in a stock: to reap the future rewards of a successful company. Earnings growth is what an investor wants to see. The stronger the better. Companies increasing earnings by more than 10% each year for the last three years have been exceptional as the economy has diminished. Look for companies that can grow earnings well above average no matter what the economy does.

It seems that every column with stock picks mentions P/Es, ROEs, and ROICs. But one of the most overlooked metrics is the P/B: the price to book value ratio.

It was a favorite of Warren Buffet's, especially early in his life when he posted some of the best returns of his career with an investment regimen inspired by Benjamin Graham. Price/book is also the first metric that I use when I screen for cheap stocks.

Happily, the latest issue of Forbes pays tribute to this forgotten barometer of value in an interview with 91-year old Walter Schloss, a man whom Warren Buffett called a "superinvestor."

Still going strong roughly 70 years since he started on Wall Street as a runner, Schloss' wisdom should be read by every value investor: Without a computer or visits to companies, Schloss has produced a track record that would leave most hotshot hedge fund managers salivating.

After reading the interview with Schloss, try screening for low price/book stocks on your own using AOL Money & Finance's new stock screener. But remember: finding low price-book stocks is just the beginning of a successful investment. A lot of cheap stocks are garbage. But if you can find a company with solid prospects trading near or below book value, you just might be onto something.

A piece in today's Wall Street Journal looks at the decline of so many home building stocks and the metric that sent so many value investors chasing a falling knife: Book Value. Book value is a defined as a company's assets minus its liabilities, and can give a quick indicator of whether a stock is really cheap.

But what got investors who chased home builders into trouble was that the companies ending up having to take write-downs because of declining land values, and they ended up in a classic value trap: The stock just wouldn't stop becoming a better deal!

Investors will continue to argue about the future of the home builders. But the issue that has some value investors scratching their heads is this: When companies write-down their book values as their businesses decline, how helpful can book value really be?

Adding to this, a decline in stock price can actually lead to a write-down of intangible assets, as recently happened at companies including PlanetOut (NASDAQ: LGBT) and Lenox Group (NYSE: LNX). So what good is book value?

It's very good. It's so good in fact that super-investors like Carl Icahn and Warren Buffett used it to screen for cheap stocks early on in their careers. Buffett's best returns came with his investment partnership based on the principles of Benjamin Graham, which are all about book value and liquidation value.

I frequently use book value to screen for very cheap stocks. But most of them turn out to be junk, and they deserve to be cheap. Book value is a great way to find potentially interesting stocks, but strong bottom-up research must follow.

Carl Icahn has made a few bucks over the years and wants to make some more on Time Warner (TWX). Seems like he has had to cool his heels lately upon making some compromises in his discussions with the TWX Board about his desire to sell off some assets. I think what has him so animated is Time Warner's book value which is a 1.25 multiple. Consider the following comparisons.

• Comcast (CMCS.A) has a P/B of 1.66. -- Cable
• Knight Ridder (KRI) has a P/B of 3.6. -- Publishing
• Disney (DIS) has a P/B of 2.2. -- Movies/TV/Entertainment
• Yahoo (YHOO) has a P/B of 5.88. -- Internet

If you figure that some assets do not have a 1.25 P/B then you must  figure that many holdings should be valued way over considering how much is aggregated into TWX. You can see in comparing TWX's book value to other competing companies with more segregated businesses that the multiple could be much higher; but even a small increase would mean billions in added value.

Icahn and his fellow instigators ... I mean investors, surely see this. So maybe TWX has some upside. As a shareholder I can tell you that is why I have hung on. However my entry point is far less than today's $17.20 price and I can understand why others are less patient. This will be something to watch because Icahn has to be on the less patient side as well.