The price-to-book value of a company is very important to value investors. It was a major theme in Benjamin Graham's book the Intelligent Investor and it has been very important to Warren Buffett throughout his investing career. Buffett has stated repeatedly that his number one investment rule is to not lose money and that his #2 rule is to remember rule #1.

When considering the purchase of shares in a company, knowing the book value or underlying value, minus any "good will," gives you a foundation on which to place some confidence. The book value is not the same thing as the break-up value of a company, which might be more or less, but they do have a relationship. The most important thing about understanding the book value is to have some idea of what the company is worth in a "fire sale." What is the company worth in its lowest common denominator. Ideally you want to pay something less than, or close to a book value of 1.0. Stocks with very high P/B ratios imply many intangibles and a higher degree of speculation in the stock price.

In June and July, I started to look favorably upon Time Warner, Inc. (NYSE:TWX). I earned a few bucks simply by noting some basic fundamentals, most notably a price-to-book (P/B) value at 1.21, by far the lowest of our original eight bloggingstocks.com companies. It seemed obvious that the Adelphia cable deal would be a positive going forward, which is what we recently learned in TWX's latest earning report. That report also highlighted other positives, like increased advertising revenue at AOL.

At the time of my first positive observations, TWX was hovering around $17 per share. Now it is knocking on the $20 door and finding a little resistance. I look at charts sometimes but I am not a technical analyst. I look for value. The fact that there is some resistance at $20 is not important unless I can rationalize it based on some relevant facts.

Douglas McIntyre, a partner at 24/7 Wall St., and one of our more knowledgeable contributors at bloggingstocks.com, has been kicking around some of the same thoughts. I have italicized his comments from a dialogue we had today.

He made the following point: The adage is to "buy the rumor, sell the news." In the case of TWX, it would appear that the market has decided to "buy the rumor, hold on the news." The news that was good, the news on the cable unit and early signs of success at AOL, is now past. The earnings release for Q3 added little to what the market knew. The same was true with the bad news. The studio business and magazine operations are not doing well.