Greenblatt On The Acquirer’s Multiple

In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Greenblatt On The Acquirer’s Multiple. Here’s an excerpt from the episode:

Tobias: I like Greenblatt’s quanty approach. I saw he was on– William Green did a podcast.

Bill: Yeah, that was a good interview.

Jake: Was it? I haven’t checked that one?

Bill: Yeah, it was. It was very good.

Tobias: And he got asked about mine, The Acquirers Multiple and he just said that we didn’t back test it to try and figure out which was we ran one back test, which I thought I knew that that was the case. It was a good answer. I don’t have any criticism of the way that he put together.

Bill: He actually said, I don’t know that you can say, but I can say, I think I can say. He actually said, “A deep value strategy has higher expected return, but is more cyclical.”

Tobias: Yeah, more volatile. I think.

Bill: Yeah.

Tobias: But possibly, that’s right.

Bill: Yeah.

Tobias: I don’t know. We’d have to get back and run it– [crosstalk]

Bill: Check out the podcast. Hear what he said. Don’t quote us.

Tobias: It’s Investors Podcast with William Green. I can’t be too critical of what he’s done. I like his approach to it. I didn’t practice mine. I didn’t like data-mine mine to get the answer. I just was wondering about the impact of blindly buying high-return on equity. But I do think that there’s a lot to be said. If you can find some defensible high returns on equity, assets, capital whatever, and buy them reasonably cheaply, clearly, that’s the best way to do it. It’s just a little bit harder to do than to say.

Bill: Yeah, and valuing the options. There’re a lot of companies out there that have a lot of option value, but then, you look at the enterprise value and it’s like, well, they better have option value, because you’re not paying for the current enterprise.

Jake: Yeah, it’s on the cup.

Bill: Yeah, that can work. But I do think that the question that I’ve asked myself on those ideas is, how much can you really size them? Because I think if you have a portfolio of those– I don’t know. It can work, but I think they’re correlated, I know they’re correlated in the short term. I’m certain of that. So, you got to have an investor base, that’ll let you get through that. Then, you got to have an emotional makeup, that’ll get you through that, and then, you got to be right.

Jake: This is trying to hit a fly ball. Let’s say, you’re going to only be evaluated on 10 at bats, like you only take 10 swings, so super high concentration portfolio, and you’re trying to hit a home run with those 10. Chances are you might hit a lot of fly balls as well and just turn into outs. So, sometimes, I think that really high variance plus high concentration might be a little bit of a dangerous game to play.

Bill: Yes, [crosstalk]

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