- Use the screeners to select the top-ranked stocks from the Acquirer’s Multiple database. Each screener identifies the 30 best stocks, but you don’t need to hold 30 positions. In general terms, holding more stocks leads to greater diversification, and lower volatility, but is harder to manage and requires more purchases. Fewer stocks reduces the number of purchases, but leads to great volatility, and magnifies the impact on the portfolio of an unexpected event. The larger companies found in the Large Cap Screener have historically generated lower volatility, and lower returns. The smaller companies found in the Small and Micro Cap Screener have historically generated higher absolute returns, but had much greater portfolio volatility. The broadest screener–the All Investable Screener–gives the best balance of return and volatility. Eliminate any stocks you do not want to own for any reason; however, you should hold at least 20 stocks to remain sufficiently diversified.
- It makes sense to consider scaling in, making regular portfolio purchases over a 12-month period, say 2 or 3 per month, or 7 or 8 per quarter.
- Hold winners for one year plus one day to maximize after-tax returns, then sell. If a stock is up, and remains in the screener after one year and one day, hold until it leaves the screener. If a stock is down and remains in the screener, hold. If a stock is down and leaves the screener, sell. You should check the portfolios to see if a rebalance is necessary no less than quarterly.
- Once you have sold a position, rebalance the portfolio into the next best position in the screener that you don’t already hold.
Disclaimer: acquirersmultiple.com is not an investment adviser, brokerage firm, or investment company. “The Acquirer’s Multiple®” is a term used to describe the investment strategy explained in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations. Use of the formula does not guarantee performance or investment success. acquirersmultiple.com is owned in part by Tobias Carlisle.
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Consider the following situation: If you have a winner and the winner is still in the screener after one year plus one day, do you still sell? Or hold the winner until it leaves the screen after holding it for one year plus one day?
If it’s still in the screen, hold it. 🙂 It’s rare, but it does happen occasionally.
I was wondering if you have evaluated whether a QV approach can be enhanced through giving some consideration to momentum? For instance, might it be advantageous to hold a stock that has left the screen for some additional period of time, perhaps six months or a year, due to the fact that mean reversion tends to be a gradual process.
I think there’s a lot to be said for momentum. I’ve got a post coming up about it, and its interaction with the screen.
What does ‘NEW’ signify ? For example, it’s under FLR . Does that mean that’s now landed into the screen ?
No. It’s recorded as part of the name in the database. Not sure why.
Hi, any reason for scaling in rather than a lump sum investment into the 20-30 stocks in one go?
If you are using the screener in a tax free account and are not being taxed on profits should you still hold a position for a year even if it has left the screener?
You have the flexibility to do whatever you like. Provided you’re spreading your purchases throughout the year, you’ll do as well holding for a year as you will rolling every quarter, and it’s less work.
You recommend investing the same dollar amount into each stock that is purchased, using your model, correct? Or, very close to the same dollar amount, but not re-balancing to match those exact dollar amounts, in essence running up your trading fees.
This would seem to be very similar to what Bruce Murison is doing with his rule #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.”.
Correct me if I’m wrong and this isn’t what you recommend. Thanks!
That is correct.
I have some basic questions about rebalancing. Since I have never bought individual stock but only ETF, how do you rebalance your portfolio? Let’s say all the stocks are still on the list, do you need to do some buying and selling to make them equal again? But it does not seem like that is the case since I read namzlot’s question and it seems like you just keep winner as it is even though they are over-weighted. So what exactly do you do when you are rebalancing?
Also, if I want to contribute my portfolio regularly (like monthly), should I buy the stocks that are unweighted in the portfolio? Do you know any good website or video clip to teach people how to rebalance the portfolio? Thanks.
I would also like to know how to introduce new/more money into the investment and the re-balance.
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I’m a subscriber and a fan your book.
I think I can tolerate larger than average portfolio swings and I am interested in a more concentrated approach (10% x 10 positions). What would be the best approach in using the screeners?
I have a question. Do you think that your deep value can still be applied to micro-small cap though in your study you only focused on large cap? I guess there is no good evidence in micro-small cap, correct?
Yes it can. I tested it in the small and micro universe. Only really appropriate for smaller accounts and investors who understand the risks of wide bid:ask spreads.
Thank you for your quick reply. I think your research (deep value) is most convincing of all and SMART (goals). In your research, how did you get reliable information of EV/EBIT or EV/EBITDA?
For US stock, you can get EV/EBIT and EV/EBITDA from gurufocus.com and these info are free for US stock. Just type the stock ticker, scroll down to summary and then look at the value at the right side of the screen, where you will see EV/EBIT and EV/EBITDA. For example, here is the link for FCAU https://www.gurufocus.com/stock/FCAU
Thank you for your comment! Yes, I found that stock screener for EV/EBIT is available in gurufocus and yahoo finance, but data are not consistent and I had to double check EV/EBIT with another site, like morningstar. Therefore, I am not sure which site/data are most reliable. Tobias used CRSP and COMPUSTAT in his research, but EV/EBIT is not easily available in those sites. For now, getting the list from gurufocus or yahoo finance and checking correct EV/EBIT with morningstar which uses CRSP data may be most reliable. What do you think?
First, I’d like to thank you for your enormous contribution to the value investing community! Your books have been a staple of my daily morning commute reading.
I have a few questions about the practical application of the screener:
1) Scaling in: The first time I’d buy 5-7 positions of those companies in the screener that hold the lowest Acquirer’s Multiple score. A few months later, I’d continue to build positions in companies with the lowest Acq. Mul. score – except in those I already built positions in (within the year). And so on… – correct?
2) Rebalancing: you mention quote “You should check the portfolios to see if a rebalance is necessary no less than quarterly.” Can you elaborate or explain that thought?
I’d have naturally invested the proceeds from every sale after holding the positions for a year equally into new positions, but do no rebalancing in the meantime to also keep transaction costs low. Is this approach wrong?
3) Have you every tested the results of very concentrated portfolios, say 10-12 positions? Most value investors are proponents of concentration and attribute their success to it as well. What are your thoughts on quantitative value investing with concentration?
4) What is the logic behind selling those positions that have fallen after a year – but also left the screener?
(thus their Acq.Mul. still increased beyond the 30 lowest in the defined universe of stocks). Is it because this means either debt has increased dramatically, or oper. earnings have crumbled?
I greatly appreciate the time you take to read my questions and answer!
If I choose not to follow the screener, how do I make a SELL decision base on the acquirers multiple? What multiple do you consider already a fair price to sell?
Best just to follow the rules as written.
Capital is constraining me from owning 30 stocks considering transactions costs (about 1% position). I plan on initiating positions in 20 companies ranked by the lowest Acquire’s Multiple. I would happily follow the rules you have listed but my situation is unique, I also will hold these positions in a tax-free account. I plan of screening once per month.
I am considering 3 options for closing a position.
1. Review the entire screen monthly, sell the stocks that leave the screen and buy the stocks that enter.
2. Review the entire screen quarterly, sell the stocks that leave the screen and buy the stocks that enter.
3. Sell several months after the stock has left the screen (to capture momentum)
4. Sell at an Acquire’s Multiple of 9 or greater.
Essentially I am wondering what is an ideal review and selling policy for a tax-free account.
I am indebted for the education your research and publishing, thank you.
Best just to follow the guide here: https://acquirersmultiple.com/2016/04/four-steps-to-implementing-a-quantitative-value-investment-strategy/
As you are Australian have you consider putting a screener across the Australian market say ASX300.
If you did I would subscribe to it. Any reason why not? too many mining stocks etc?
It works in Oz. Just need to find a data source and justify the business case.
IRESS maybe ? Suspect it wouldn’t be cheap.
hi, Tobias, good day,
I just finished reading your book “the acquirer’s multiple”. I am new to investing, and planning to do in Indian stock market. is that okay i can use EV/EBIT instead of EV/Operating earning ? I found it difficult to get an screener; using screener.in
Yes, that would work. Just make sure it’s operating EBIT and not from some other source.
I’m from Brazil and I don’t speak English but I want to use this strategy in Brazil, in addition to EV/EBIT, ranked from lowest to highest, is there any other filter used to choose stocks?
Yes, we look at financial strength and health and other factors.
Thank you for the insightful research and method for deep value investing. If I invest in 6 stocks quarterly, shoul i pick the 6 lowest AM stocks, or can I randomly pick any of the 30 stocks in the screen? Is ther a statistical difference in results?
Yes, buy the stocks with the lowest acquirer’s multiple. We recommend 30 positions.
I’ve read your book ” deep value” and I have listened to all of your interview on ” The Investor’s Podcast” and I have to say that I’m amazed by your openness to your approach and am grateful for all you have done to the investor’s society. Now I’m gonna upgrade to the paid version and I’d like to know if the paid version TAM screener would work in my case or no. Please bear with me with the questions because I’m a newbie in the investment world. First, I’d like to know if the currency difference Will impact the performance of TAM screener since I’m Italian? Second, I’ve saved up €25,000 for the investment and I can add extra €500 monthly, will my small amount of capital preventing me from using the TAM 20-30 stock portfolio? If that’s the case how much money should I save before I can use the 20-30 stock portfolio? Thanks in advance for taking the time answering my questions and I wish you and your loved ones all the best!
it will depend on your brokerage costs. You don’t want to spend more than 1% getting in and out of a stock. We are working on a solution for smaller accounts. Stay tuned!
Though I am clear on what to do with the winners (and would love to see those!), I have a quick question about the strategy for the losers. Am I correct in understanding that one should check the losers at each point of regular re-balancing and eliminate those that left the screener at that point (as opposed to holding on until 1 year regardless)?
That is correct. To capture short term capital losses.
Very interesting system! There appears to be some (but not large) overlap with the MagicFormula portfolio (at the moment) which also makes sense.
A couple of quick questions if I may:
– initial entry – would slowly picking just several top (based on the acquirer’s multiple) stocks at a time, until new low-multiple ones appear be preferred to just a single swoop of all 20 or 30 names? At the moment, there is a sizable difference between the top names (multiple of 4)
– why would a stock fluctuate in and out of the screen despite being near the top whenever it’s in? Price hasn’t changed much but neither did the earnings and yet BPI has been in and out several times in the last several weeks. I would expect price to be the reason it can move but first it has to go towards the bottom rather than completely drop out, then return near the top again
– a lot of the stocks seem to come from several currently depressed industries: energy and mining. Would it be wise to avoid over-exposure and not selecting too many from the same industry for the actual invested portfolio (say, pick only the top one in each) or is that exactly the type of counter-productive human interaction that the screen is designed to beat?
First i wanted to thank you for everything you’ve posted and written. I love your books, interviews and speeches and I just cant thank you enough for all the information you have shared.
A lot of investor talk about how people mess up their investments from personal biases on the market. You have spoken about when Joel Greenblatt created his fund with option for investors to manually decide to buy or pass on investments shown to them or let the computer handle everything. in this instance the investors who let the computer do everything drastically outperformed those who chose to do manually. Yet we hear all the time about managers and funds who have to high of fees or choose the safe picks on our behalf which will cause our performance to either match or go below the market.
My question is how do you distinguish from these different scenarios? How do I determine if I’ve invested with a Joel Greenblatt or a manager who is going so harm my performance in the market?
Thank you again for everything,
I think I might have solved the mystery of BPI disappearing / reappearing repeatedly. It is riding right on the edge of a market cap cutoff so when it’s up, it enters the main screener and when it’s down, it falls to the small cap one!
Could you please comment on the other two questions when you have a chance?
1) initial entry – would slowly picking just several top (based on the acquirer’s multiple) stocks at a time, until new low-multiple ones appear be preferred to just a single swoop of all 20 or 30 names? At the moment, there is a sizable difference in the multiples between the top and bottom names
2) a lot of the stocks seem to come from a couple of currently depressed industries: energy and mining. Would it be wise to avoid over-exposure and not selecting too many from the same industry for the actual invested portfolio (say, pick only the top one in each) or is that exactly the type of counter-productive human interaction that the screen is designed to beat?
Many thanks in advance,
Hi Toby I would like to clarify the 1% trading cost? I assume this consists of the total cost of both buying a selling? Like others, my initial capital investment to get started is somewhat constricting i.e 30-40k, with transaction costs of $20. Is it worth persevering at a slightly higher transaction cost for a couple of years until i reach the 1%, or am i just thinking about it to much? Again like many others, the book has really resonated with me. Cheers.
I’d go ahead. That’s not a huge drag if you’re expecting >1% outperformance, which, over the long run is possible.
Hi, Tobias. Im from Portugal. I read your books and I’m interested in your screener investing.
Some studies said that 2 factors “low EV/EBIT+Momentum (6 month variation > zero)” are better than 1 factor “low EV/EBIT”.
Do you agree?
I just saw the tweet. Seems to work.
In the same tests, 15%-20% trailing stop loss seems also work (better performance). Do you agree?
Possible. I haven’t tested it separately.
How acquirers multiple perform in long term agains NCAV/NNWC Graham strategy? Is acquirers multiple better?
Yes, the acquirer’s multiple is better.
Is there a minimum value to the Aquirer’s Multiple? I am looking into small cap stocks in Scandinavia (Norway, Denmark and Sweden) where I find the lowest 20 company having EV/EBIT between 0.2 – 3.9 (there are also many with negative). Is EV/EBIT = 0.2 ok? or should I set lower limit to EV/EBIT in my screener, say 1 or 2?!
Love your books and website.
Thanks Vebjørn! No, no minimum.
hi there, just finished listening to your excellent book on audible. Where I am from all capital gains are taxed 26% no matter how long you hold. how does that affect the selling timepoint? thanks for taking the time to reply. cheers, j.
Thank you. Research shows the best returns are holding and rebalancing around 12 months, but excess returns are available out to 5 years.
What’s your recommendation for adding new money in? Is it best to add to losing positions as a way or rebalancing if the stock is still in the screener? Or is it best to keep it and use it for new stocks when you come to sell buy others?
Match the screener at the time you buy.
I’m using the all investable screener which has a couple hundred or so stocks.
What do you mean by “leaves the screener” ? Does that mean no longer in the top 30? Or nowhere to be found on the entire screener?
Yes, if you’re buying from the top 30, then outside the top 30.