Tobias Carlisle – There Are Two Ways To Win As A Deep Value Investor

Tobias Carlisle – There Are Two Ways To Win As A Deep Value Investor

Here’s a great interview with Tobias Carlisle on Goldstein on Gelt where he speaks about all things deep value investing.

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On the question of why some value investing firms underperform and why he prefers his deep value investing strategy, Tobias says:

I’m always very careful criticizing other value investors, because it means that you are just about to go into a period like that yourself. It has been a very difficult period for value over the last seven years.

The last period of underperformance like this was the late 1990s. Then that led to a very good period in the early 2000s. Through this period, value has done okay. It’s just that the market has been so strong that the relative performance isn’t great.

One big mistake that I see – and that I’ve shown quantitatively to be an issue – is overpaying for return on invested capital; overpaying for growth.

Businesses don’t exist in a vacuum. They’ve got competition that desperately wants that very high return on invested capital.

It means you grow very quickly without putting too much into the business.

These businesses are assaulted all the time by their competitors, or companies, in adjacent industries or startups that are very well financed.

That return on invested capital tends to revert. It also happens on the other side, with poorly performing companies.

Lots of the competition leave the industry or they just fold because it’s so tough to survive. They tend to do better.

That’s why deep value investors do quite well looking for those companies that look like they are in a bit of trouble, but they can survive because they’ve got the balance sheet value there.

You get that improvement in the business and the narrowing of the gap between the discount to value. You get these two ways to win, which is why I prefer deep value.

Tobias’ interview starts at 8:27:

Article by Johnny Hopkins, The Acquirer's Multiple

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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