2. Deep Value Investing Returns (Acquirer’s Multiple) – January 2, 1999 to July 26, 2016

Tobias CarlisleStudy Comments

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Updated July 26, 2016

Chart 1. Returns from January 2, 1999 to July 26, 2016 (Log.)

TAM Comparison Returns to 20160726

We backtested the returns to a theoretical portfolio of stocks selected by The Acquirer’s Multiple® from each of the Large Cap 1000, All Investable and Small and Micro Cap stock screens.

The backtest assumed the model bought and held for a year 30 stocks selected from each of the universes (the Large Cap 1000 screen draws from the largest 1,000 stocks; the All Investable screen draws from the largest half of stocks by market capitalization; and the Small and Micro Cap screen draws from the smallest half by market capitalization–see the Guide to the Three Universes for more information).

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Each screen was rebalanced on the first day of the year using the most recent fundamental data. The backtest ran from January 2, 1999 to July 26, 2016. We excluded utilities and financials, and stocks traded over-the-counter (OTC).

Over the full sixteen-and-a-half year period, the All Investable screen generated the highest total return of 5,705 percent, or a CAGR of 25.9 percent per year. The Small and Micro Cap screen generated the second highest total return of 3,283 percent, or a compound growth rate (CAGR) of 22.0 percent per year. The Large Cap 1000 generated the lowest total return of 1940 percent, or 18.4 percent per year compound.

All beat their respective benchmarks.

Yearly Returns from January 2, 1999 to July 26, 2016

Chart 2.1 The Acquirer’s Multiple® Large Cap 1000

TAM Large Cap Annual Returns to 20160726

The Acquirer’s Multiple® Large Cap 1000 model portfolios have generally outperformed, although underperformed in 1999 (-6 percent), 2008 (-10 percent), 2014 (-3.6 percent), 2015 (-12.8 percent) and 2016 (-3.8 percent).

Chart 2.2 The Acquirer’s Multiple® All Investable

TAM All Investable Annual Returns to 20160726

The Acquirer’s Multiple® All Investable model portfolios have generally outperformed, although underperformed in 1999 (-1.6 percent), 2012 (-5.5 percent), 2014 (-11.1 percent), and 2015 (-19.2 percent).

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Chart 2.3 The Acquirer’s Multiple® Small and Micro

TAM Small and Micro Cap Annual Returns to 20160726

The Acquirer’s Multiple® Small and Micro model portfolios generally outperformed, although underperformed in 2008 (-6.5 percent), 2012 (-0.3 percent), 2014 (-1.0 percent) and 2015 (-12.3 percent).

Chart 3. Drawdowns from January 2, 1999 to July 26, 2016

TAM Comparison Drawdowns to 20160726

The Small and Micro Cap screen saw the largest drawdown of 64 percent, which occurred between July 2007 and March 2009. The worst drawdown for the All Investable screen was -45 percent, and -66 percent for the Large Cap 1000.

The 30-stock screen selected by The Acquirer’s Multiple® from each of the Large Cap 1000, All Investable and Small and Micro Cap universes consistently outperformed the broader Russell 1000 TR, Russell 2000 TR and Russell 3000 TR. The trade off is periodic underperformance–approximately one in five years–and deeper and more frequent drawdowns.

3. Don’t Mess With the Screens – Human Intervention Hurts Your Performance.

Disclaimer: Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance may be materially lower than that of the backtested screen. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investor’s decision-making process if the investor was actually managing money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model screen (in this case, The Acquirer’s Multiple®) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.

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