One example of a company that actually did make large repurchases of shares substantially below book value in 2011 is American Capital ( NASDAQ: ACAS), which announced it bought back millions of shares of its own stock, at prices considerably below its most recent reported book value per share, thereby elevating the per-share book value of the remaining shares.

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The Price to Book ratio is a formula that represents the most recent share price of a company compared to its book value per share (the residual dollar value for common shareholders after assets are liquidated and all debtors are paid).

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However, tangible book value per share is a good measure of liquidation value, or the amount that shareholders can reasonably expect to receive should the company go under.

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Whenever a company trading at a premium to book value issues new shares, whether from a secondary offering or in the course of an acquisition, the book value per share goes up.

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The company acquired the assets of Allied Capital below book value in April 2010, maintained its dividend of 35 cents per share for the past seven quarters and returned shareholders almost 25% per year on average since 2008 (with dividends reinvested).

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Last fall Berkshire announced that if the per-share book value fell below 110% of the stock price (1.1x the stock price) the company would step in and repurchase shares.

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In 2012, AHL grew its book value per share grew by 6% and delivered an operating ROE of 8.5%, which was very impressive considering the impact of Superstorm Sandy and low interest rate environment.

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The fact that the stock price has lagged the increase in per-share book value is what savvy investors should take note of.

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