How To Set Up and Manage a Deep Value Stock Portfolio (Simplified)

Johnny HopkinsPortfolio Management Comments

We get lots of emails asking about the simplest way to set up and manage a deep value stock portfolio like mine, which I’m currently building (see below). To tell you the truth it’s really easy!

Here at The Acquirer’s Multiple we provide three deep value stock screens. We use The Acquirer’s Multiple® to select the stocks for our screens. The Acquirer’s Multiple® is calculated as:

Enterprise Value / Operating Earnings*

*The Acquirer’s Multiple® is different to EBIT and EBITDA as our operating earnings figure is constructed from the top of the income statement down. 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.

The Acquirer’s Multiple® was born out of the research conducted by Tobias Carlisle in his Amazon best-seller Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations which describes how companies with a low rank based on The Acquirer’s Multiple® may be undervalued.

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Howard Marks – Psychology Is The Most Important Discipline In Investing

Johnny HopkinsHoward Marks Comments

One of our favorite investors at The Acquirer’s Multiple is Howard Marks.

Howard Marks is Chairman and Co-Founder of Oaktree Capital Management, the world’s biggest distressed-debt investor. He’s known in the investment community for his “Oaktree memos” to clients which detail investment strategies and insight into the economy, and in 2011 he published the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

One of our favorite memos is one he wrote in January, 1994, where he discusses the most important discipline in investing – psychology. It’s a must read for all investors.

Here’s an excerpt from that memo:

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Pendrell Corp – Negative Enterprise Value

Johnny HopkinsPCO, Stocks Comments

The cheapest stock in our All Investable – Deep Value Stock Screen is Pendrell Corp (NASDAQ:PCO).

Pendrell Corp (Pendrell) invests in, acquires, and develops businesses with unique technologies that are protected by intellectual property (IP) rights in the United States. It manages four IP licensing programs comprising digital media, digital cinema, wireless technologies, and memory and storage technologies.

Pendrell is a stock that looks seriously undervalued. The company has a strong balance sheet, is lean on capex, has loads of free cash flow, and has NOL’s that it can carry forward to offset taxable income. In terms of its valuation, with the company’s current share price at $6.45 Pendrell is trading at a discount to both its Net Current Asset Value of $6.79 and its Tangible Book Value of $7.41. Pendrell also has an Acquirer’s Multiple of -0.57 and a FCF/Price yield of 7% (ttm).

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Mohnish Pabrai – Value Is Its Own Catalyst – The Market Is a Weighing Machine

Johnny HopkinsMohnish Pabrai Comments

One of our favorite investors at The Acquirer’s Multiple is Mohnish Pabrai.

Mohnish Pabrai is the Founder and Managing Partner of the Pabrai Investments Funds, the founder and CEO of Dhandho Funds, and the author of The Dhandho Investor and Mosaic – Perspectives on Investing.

He’s one of the smartest guys on the planet when it comes to investing.

One of my favorite Pabrai interviews was one he did with The Graham & Doddsville Newsletter, it’s a must read for all investors.

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FutureFuel Would Make A Great Acquisition

Johnny HopkinsFF, Stocks Comments

One of the cheapest stocks in our All Investable – Deep Value Stock Screener is FutureFuel Corp. (NYSE:FF).

FutureFuel is a leading manufacturer of diversified chemical products and biofuels. FutureFuel’s chemicals segment manufactures specialty chemicals for specific customers (“custom manufacturing”) as well as multi-customer specialty chemicals (“performance chemicals”). FutureFuel’s custom manufacturing product portfolio includes a laundry detergent additive, proprietary agrochemicals, adhesion promoters, a biocide intermediate, and an antioxidant precursor. FutureFuel’s performance chemicals products include a portfolio of proprietary nylon and polyester polymer modifiers and several small-volume specialty chemicals and solvents for diverse applications. FutureFuel’s biofuels segment primarily produces and sells biodiesel to its customers.

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Ken Shubin Stein – Follow Munger’s 3 Ways To Find Good Opportunities

Johnny HopkinsCharles Munger, Ken Shubin Stein Comments

One of our favorite investors at The Acquirer’s Multiple is Ken Shubin Stein.

Ken Shubin Stein is the Founder and Portfolio Manager of Spencer Capital Management and the Chairman of Spencer Capital Holdings. Spencer Capital is a value-oriented investment management firm with a successful long-term track record investing in undervalued securities and special situations. He is also an Adjunct Professor at Columbia Business School, where he teaches the Advanced Investment Research course.

One of my favorite Shubin Stein interviews was one he did with the Graham & Doddsville Newsletter. It’s a must read for all investors, here’s an excerpt:

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Free Cashflow Machine Argan Well Placed For Continued Growth

Johnny HopkinsAGX, Stocks Comments

One of the cheapest stocks in our All InvestableDeep Value Stock Screener is Argan, Inc. (NYSE:AGX).

Argan provides a full range of engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation and renewable energy markets for a wide range of customers including independent power project owners, public utilities, power plant equipment suppliers and global energy plant construction firms.

Check out our full stock analysis on Argan at ValueWalk, here.


Julian Robertson – Start With Management & Avoid REIT’s

Johnny HopkinsJulian Robertson Comments

(Image courtesy,

One of our favorite investors here at The Acquirer’s Multiple is Julian Robertson.

Robertson founded the legendary investment firm Tiger Management, one of the first hedge funds. He has trained and supported some of the best hedge fund managers in the world, collectively known as the “Tiger Cubs”.

According to ValueWalk, the Tiger Cubs manage around 50 of the world’s top hedge funds, including Stephen Mandal’s Lone Pine, Andreas Halvorsen’s Viking, Rob Citrone’s Discovery Capital Management, Philippe Laffont of Coatue Management and Lee Ainslie of Maverick Capital.

One of the best Robertson interviews was one he did with The Graham & Doddsville Newsletter. It’s a must read for all investors. Here’s an excerpt from that interview:

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