Bruce Berkowitz – 26 Maxims For Successful Value Investing

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The Acquirer's Multiple
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One of my favorite investing books is Invest Like A Dealmaker by Christopher Mayer. The main premise of the book is that there are two market prices for a company listed on the stock exchange. One price (the public market price) can be found using the ticker symbol on sources like Google Finance or Yahoo Finance. The other price (the private market price) is the real valuation of the company in a private market, based on its assets. liabilities, cash flow etc.

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In his book Mayer makes one particular reference to an article by Bruce Berkowitz, Founder of The Fairholme Funds, that is a must read for all investors called –  Fairholme’s Maxims: A Primer to Value Investing. The article provides twenty six maxims that have been used as the cornerstone of Fairholme’s value investing framework:

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1) A to Z (research all aspects of a company)

2) Back to front (dig into the minutiae)

3) Cash counts (it’s the only thing you can spend)

4) Don’t guess (know!)

5) Expanding universe (extend our competence)

6) Focus sharpens returns (only own your best ideas)

7) Get more than you give (our objective)

8) Happy is sad (you make your money in difficult times)

9) Ignore the crowd (don’t be a lemming)

10) Jam tomorrow today (the magic of compounding)

11) Keep it simple (focus on what’s important)

12) Lumpy over smooth (a lumpy 15% return beats a smooth 10)

13) Management (can’t do a good deal with a bad guy)

14) New new things (ideas taken to extremes cause pain)

15) Owners know best (“skin in the game”)

16) Price matters (buy with a margin of safety)

17) Quirky can work (consider the unusual)

18) Rip it up (try to kill ideas)

19) Surfing waves (get in front of the trends)

20) Talking and walking (we really do eat our own cooking)

21) Under our hat (it’s not in your interest for us to tell all)

22) Value is all that (…matters)

23) What they want? (understand who wants what)

24) X-ing the lines (research across disciplines)

25) You’re the one (we do what’s right for you)

26) Zero can’t grow (Don’t lose)

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 acquirersmultiple.com. 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 acquirersmultiple.com, 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.”