Small Quality Value Crushing It | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Small Quality Value Crushing It. Here’s an excerpt from the episode:

Tobias: The only other bit of research I’ve got just so I can get this one out there, it’s nothing that nobody would expect, I wouldn’t think, but smalls are now relatively cheap. I think they have been for a little while, but– [crosstalk]

Jake: Ain’t getting smaller. [laughs]

Tobias: Ain’t getting smaller. Smalls are getting smaller and cheaper.

Bill: I don’t know. They’ve been trading strong lately, haven’t they?

Jake: I was joking.

Bill: I mean, industrials.

Tobias: It’s the time periods that we’re talking about.

Bill: Yeah.

Tobias: I think they started the decade expensive and they’ve come back a lot. Maybe they’ve been strongish since October, or six months of this year, or something like that. I’m not sure.

Bill: Okay.

Tobias: I don’t know. The conclusions are very simple. Basically, in small, you want to be in the better-quality smalls, probably everybody already knows this but you want to be in the money-making smalls not the money-losing smalls. Money-making small have outperformed smalls by 1.8% a year going back to that 73 and small quality versus everything else that performed by 2.8% a year. That’s a big margin. Surprised to see that one. Certainly, [crosstalk]

Bill: Ian Cassel, celebrate. Shoutout to you, Ian.

Jake: [chuckles] Small in quality.

Bill: He’s always said like, “If you’re getting into small, kick out all the money losing-ones and then start there,” which I think makes sense.

Tobias: Yeah, the strategy that I’ve heard that I like is, you find the ones that are a quarter away from going profitable on a trend line and you buy them where they have a cue where they lose money than they have a cue where they make money and you make a lot of money when they make money when they first go positive. You have to know them reasonably well where to figure that out, I guess.

Jake: it sounds like a lot of work.

Bill: Yeah.

[laughter]

Tobias: JT, do you want to hit us with some Stanley McChrystal?

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