A Mechanical Investment Plan Using The Acquirer’s Multiple

Deep Value Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations Tobias Carlisle

A Mechanical Investment Plan Using The Acquirer’s Multiple by Tobias Carlisle, GREENBACKD

Bruce Murison* contacted me at the start of June with an interesting proposition: He would open a dedicated account to trade the Acquirer’s Multiple All Investable Stocks Screen and post his strategy and results on the site. He thought knowing there was a public eye keeping him on the straight and narrow might assist with his discipline (the same reason I launched Greenbackd in 2008). He wondered if a real time, real money account tracking the acquirer’s multiple’s performance would be interesting to readers of the site. I of course leapt at the opportunity. Bruce hopes that his project might encourage outside the box thinking and maybe lead to others posting their strategies and ideas that could become an interactive community of users. Here begins Bruce’s first post in what I hope will be a long series:

I am dedicating a $25,000 real money account to trade stocks ranked favorably according to The Acquirer’s Multiple (TAM). Every stock will be chosen and traded according to these rules:

  1. For purposes of this plan, Qualifying Stock (“QS”) is defined as the stock on the All Investable Stock Screen (“Screen”) with the lowest Acquirer’s Multiple, after excluding stocks currently held in the portfolio.
  2. The fully invested portfolio will consist of ten QS and negligible cash.
  3. The initial portfolio will be constructed over the course of the first year by buying the new QS every 36 calendar days until fully invested.
  4. When any 36th day, measured from the date of the previous purchase, falls on a day U.S. markets are closed, the QS will be bought on the next trading day.
  5. Each stock will be reviewed shortly before the one year anniversary of its purchase. If its sale would result in a loss, sell just before the one year anniversary; if a gain, sell just after.
  6. Replace each stock sold with the current QS.
  7. If, however, the stock to be sold, would, if not already held, be the new QS, do not sell but hold for review again one year later.
  8. If a portfolio stock becomes the object of a takeover or merger that closes before the one year anniversary of its purchase, reinvest in the current QS as soon as the cash is received and / or any securities received in exchange are sold.
  9. Strive, at purchase, for equal dollar weightings of each stock, to the extent possible. However, no rebalancing trades will be made during a stock’s holding period.
  10. All trades will be market-on-close.
  11. No margin will be used.
  12. The performance benchmark is the total return of the Russell 3000 Index.

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Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations by Tobias E. Carlisle



About the Author

Greenbackd
My name is Tobias Carlisle. I am the founder and managing member of Eyquem Investment Management LLC, and portfolio manager of Eyquem Fund LP. Eyquem Fund LP pursues a deep value, contrarian, Grahamite investment strategy based on the research featured in Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (hardcover, 288 pages, Wiley Finance, December 26, 2012), and discussed on Greenbackd. I have extensive experience in activist investment, company valuation, public company corporate governance, and mergers and acquisitions law. Prior to founding Eyquem, I was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions I have advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam, ranging in value from $50 million to $2.5 billion. I am a graduate of the University of Queensland in Australia with degrees in law and business (management). Contact me I can be contacted at greenbackd [at] gmail [dot] com. I welcome all feedback. Connect on LinkedIn, where we’re Friends.