Tobias Carlisle, Founder
Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®.
He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam. He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
Connect with Tobias on Twitter, LinkedIn or Facebook.
Johnny Hopkins, Analyst
Johnny Hopkins is a financial analyst who specialises in deep value stocks, here at The Acquirer’s Multiple. He’s a Deep Value investor, based in Melbourne, Australia.
You can contact Johnny here: firstname.lastname@example.org
I just registered for the free screener, but am considering the upgrade to paid.
At this point, I envision my strategy would be to add one stock per month for the first year for a twelve stock portfolio. By each month choosing the lowest TAM stock in the chosen universe (that is not already held), might this strategy build a portfolio even cheaper in value than the all-stocks-at-once back tests and, therefore, over time, outperform?
Also, I question non US-based stocks. At times, in other screeners, I have wondered if currency conversions were always reliably done, and if accounting conventions in other countries were different enough so that financial information might not always be recorded consistently in the rigid format of a database. I understand the benefits of international diversification, but I am still thinking of limiting my choices to the lowest TAM US-headquartered companies only. I am interested in your thinking on this.
I have followed Greenbackd off and on over the years, but had not been aware of your TAM work until I saw it referenced today on Seeking Alpha. I am intrigued.
Thanks for the note.
There’s no problem with scaling in 1-2 stocks every month. Once you’re fully invested the portfolio should perform broadly in line with the screener portfolios.
No problem at all in avoiding the ADRs or non-US based stocks. That’s quite common. I include them because the model portfolios have historically outperformed when ADRs are included, but I understand why you may not feel comfortable holding them. That’s not an issue.
Would you please let me know where you saw it on Seeking Alpha?
Thanks for the reply.
I have to rethink my concern about ADRs, in view of their historic performance. I believe I saw that you exclude Chinese domiciled companies, which somewhat alleviates my concern.
I had thought that constructing the portfolio with the lowest TAM stock each month might outperform the 30 or 20 stocks-at-once tests, at the cost of greater volatility. My thinking was that I would, in effect, have twelve one-stock portfolios that could, over time, capture extra alpha from the very deepest value TAM stocks.
I know TAM is constructed differently than the Magic Formula, but I see a correspondence in the current top 30 for the largest caps in your free screener. The ascending 30 TAMs are also exactly descending Magic Formula earnings yields. Would this always be the case? If so, why not just use magic formula earnings yield and skip the MF dual quality ranking? I realize I am raising this question with extremely limited data. Perhaps the best MF earnings yields from the whole data base would be completely different stocks than the best TAMs.
I note you include MLPs. Is this a difference from the Magic formula universe?
The Seeking Alpha article is by author “Inner Scorecard” and is titled “Being a Value Investor Without Doing the Work Part II: Alternatives to the Magic Formula”. It was published May 25 at 10:15 a.m.
Thanks again for your attention to your followers’ questions. I hope you have a lot of success with this site.
As a general rule, the cheaper the AM, the better the performance. In practice, there’s a lot of randomness, so it pays to diversify. Pat O’Shaughnessy did some interesting research examining exactly your question (monthly rolling 1-100 holdings) here. He initially found the buying the best 5 gave the best returns, and the best 15 gave the best risk adjusted returns. (I have seen some revised research of his that suggests the best one gives the highest returns and the best 25 give the best risk adjusted returns). A handful every month may give you the best of both worlds.
The AM operating earnings and EBIT/EV (the Magic Formula Earnings Yield) will mostly coincide, however, they are constructed differently. Operating earnings is built from the top of the income statement down, where EBIT is built from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible. Most importantly, it excludes special items–earnings that a company does not expect to recur in future years–which ensures that these earnings are related only to operations. EBIT will catch special earnings unless it is specifically backed out. Operating earnings is the better metric. Great question. (You’ve got a good eye!)
The screeners include MLPs. Again, only because I want the broadest universe possible, and excluding them has led to underperformance.
Hope that helps.
Thanks for the great response – very comprehensive.
I need to trust the universe and take what it gives me – ADRs, MLPs, etc.
I will be signing up soon and also need to get your book. I am asking questions mostly blind, without the book.
My plan is a one stock portfolio each month for a year, then review monthly according to your rules. I am not too concerned about volatility. (At least that’s what I say now, before it happens! ) If I keep this up long enough, we will have a real world test of the one stock method.
Thanks again for taking the time to share your knowledge.
My pleasure. Thank you, sir.
This is my last comment / question – I know you are busy.
I read your link to the O’Shaughnessy research after I had sent my last reply. It gives me pause that the one-stock looks so inferior. I wonder if you have a link to the revised research you mention, showing one- stock most profitable.
My plan may be different than his. I would not repeat a stock, where I surmise that he might, if it were on top of his ranking two months in a row. I would instead choose the second ranked stock, if the same stock I had already bought were still first. That way I would definitely have twelve stocks after a year, where I don’t think he necessarily would. I’m not sure of this though, as I am not sure I understand his exact procedure.
Looking at his table, showing one-stock among the worst, the highest returns look like they would come not from five-stock, but actually from four-stock, the four being second through fifth, eliminating the top ranked name.
This would all go out the window if the revised research were convincing, but it always concerns me when “further research” changes results dramatically. Who knows what to believe.
I am now going to fade to the background, sign up, put some real money to work and see what happens.
The revised research will appear in my new book about concentrated value investment due out in about 9 months, so I can’t share it yet.
You’re right that your plan is likely different. He has tested the results of holding a single stock etc, but done it on a rolling basis so that he eliminates any seasonal bias. Your results will be closer to the 12-stock portfolio.
I think you get the best risk-adjusted results between 20 and 30, which is pretty standard in the investment community. The results keep going up as you concentrated, but they become much more volatile.
Hope that helps.
Hi Tobias ,
Read both your books great reads and learned alot from them.
I just subscribed to your site as well.
Wanted to ask about NSU which was on the screener for all investible stocks.
It has an M score of -1.07 as per guru focus and that would suggest it might be a manipulator.
Can you pls shed some light on that ? Since in your book that was one of the screeners to check.
Thanks for the note. We use the suite of QV forensic accounting measures looking for earnings manipulation, and fraud. We rank on the combined score and kick out the worst. Beneish’s M-Score gives a probability of manipulation. NSU’s M-SCore, at -1.07, is slightly higher than the index of non-manipulators at -2.22. NSU’s red flag is in its DSRI-Days’ Sales in Receivables Index. YoY Sales jumped more than threefold from $155mm to $555mm, while Net Receivables fell from $57mm to $32mm, giving it a score over 5 on both the 5- and 8-variable versions of the DSRI, which is odd (non-manipulators should be at 1.031 on the 8-variable version). While Sales and Receivables behavior like that might be unusual for a manufacturing or service business, it’s not necessarily fatal for a commodity miner, where big swings in the underlying commodity and mineral finds mean Sales and Receivables are less predictable year-to-year. NSU was not knocked out by the other fraud and earnings manipulation variables, so it remains in the model. Still, it’s a red flag for a reason, and it’s worth watching. The fundamental data is run weekly, so the situation might change, but it’s within bounds for now.
I have a question for you regarding buying into a diversified portfolio based upon your screeners.
Let’s assume that someone buys 2 companies per month for a total of 24 companies over a 12 month period. Is it better for buy the cheapest acquirers multiple available every month, whether or not that company is found on the small, all or large cap screener or is it better to stick to one screener (either the small, all or large) according to your process/system long-term?
Lastly, does your additional screening based upon cheapness, risk and earnings cause one to experience different results than what you found in your back testing research for low growth value stocks?
1. Cheaper is better. The best screeners for that purpose are the All Investable Screener or the Small and Micro Cap because they don’t overlap.
2. Yes. I anticipate that it will improve it.
This is an awesome website! Just out of curiosity, do you guys plan to provide such screeners for international markets as well? Given that emerging markets have been trading at overall low valuations, there will be more opportunities to discover based on TAM. For example markets like Singapore and Hong Kong which have strong regulations and reliable data reporting.
It’s a great idea. They’re all coming.
I have read both books with admiration.
I have started a portfolio 2 weeks ago with 29 stocks.
Three have left the screener, KORS, MOV, and MU, and are up 8.58%, 25.3%, and 16.3% respectively. Do I sell or wait the year. They are in a tax free Roth .
I’m not sure what approach you’re using, but you either hold until the positions have reached your estimate of value, or you hold until your next regular rebalance. Those are good returns in a very short period of time. You’ll typically get better returns holding for longer (say ~ 1 year or more).
Good morning Tobias,
I was wondering if you have any plans to calculate and publish the Acquirers Multiple on the ASX (Australian Stock Exchange) in the near future. I’d be interested in adopting a strategy such as yours in Australia- assuming that the results are similar to the USA.
Thanks and regards
Yes, Australia is on the cards.
That’s great Tobias, thanks for the reply and I look forward to the AM going live in Aus
In my country, the maximum tax rate on capital gains and foreign dividends is going up to almost 29%.
This raises two questions. Have you looked at the results if stocks are held for multiple years? Even holding for just 2 years decreases cap gains to around 14.5%.
Have you repeated your screens, but limited the results to those stocks with low dividend yields ( bottom 50% or bottom 33% or bottom 25% or no dividends)?
I haven’t looked, but I would guess that holding for longer would slightly reduce returns. It sounds like the additional “alpha” from paying the long-term capital gains tax rate would likely improve after-tax returns, which is all that counts.
I should correct my post above. In my country, the maximum tax rate on capital gains is going up to almost 29%; however, the maximum tax rate on foreign dividends is going up to almost 58%.
I have my free account and I’m going to join the payment registration.
The EV/Ebit method(TAM) looks pretty interesting, but for me there is a weak part: the drawdowns
1. What does the TAM to avoid them or at least to try it?
2. Your financial scores ( your own Piotroski variation) is part of TAM or not? Is it taken in condideration in your screener?
Hi Miguel, The screen runs the Beneish, Piotroski and Altman scores, and other value and risk metrics over the universe before ranking on the acquirer’s multiple. The best way to avoid drawdowns is to hedge with an index. Now might be a good time because the market is expensive, and the most popular trend signals (Golden/Death cross and 200 moving average) are down.
Thank you very much for your quick answer. With your answer I can deduct that the Piotroski, Altman filters help to avoid too leveraged or financially weak companies. I realize that nobody can provide absolute safety about the future of the companies, and with these filters TAM pass my requirements.
Sadly I haven’t understood your explanation about how to avoid the drawdowns (or at least the worse drawdowns) hedging with an Index. If we agree that the market is expensive and the trend signals look that are going down…wich is the right behaviour for a non pro value investor like me? Keep me out of the markets until the trend looks to change ? Taking short positions?
Thank’s for your answer, congratulations for your books and happy and healthy new year for all the suscribers from a small sunny spanish island in the middle of the mediterranean sea.
Thanks for the kind words. I’m not sure what your comfort level is, but for long only investors fearful about the level of the index, Graham recommended being no less than 25% invested. If you’re prepared to hedge, you can be fully invested long, and hedged. One way to do so is to sell short an index ETF.
Hello Mr. Carlisle,
I just watched an interview online where you mentioned an etf coming from you based on these principles – any news as to a launch date?
I’m Canadian – any plans to publish the Acquirers Multiple for Canada?
Hi Jim, Yes I’m working on both. Coming soon!
Thanks, that’s really good news.
Two quick questions:
1. In the “Four steps to implementing a quantitative value investment strategy” FAQ post, you state:
“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.”
My question relates to “if a stock is down and leaves the screener, sell.” I recently (within the past month) purchased WNR and it appears that it has left the screener (which I assume is because other stocks have arrived due to the recent routs these past few weeks). Does this mean sell immediately when a stock leaves the screener, or rather, wait a year and sell if it leaves the screener?
Obviously being a human, I don’t want to sell yet, but I rely on the model and not my intuition.
2. I believe I saw a post above from May 2015 that you said you were writing a new book on Concentrated Value…any update on that?
Thanks for all you do,
“The best way to avoid drawdowns is to hedge with an index. Now might be a good time because the market is expensive, and the most popular trend signals (Golden/Death cross and 200 moving average) are down.”
well done Mr. Carlisle!
Hi Tobias, how are you?
I really liked your talk on Youtube and just bought your book Deep Value. I would like to put your system into practice but would like to ask you if you guys plan on screening more markets other than the US market. Places like Europe, Latin America and so on.
Thanks for the kind words. Yes, we plan to screen globally but we don’t offer that service yet.
Acquirer multiple -ve:
I see one of the acquirer multiple(A/M) value is -ve (company symbol PCO) and it may be the valid case. However, should we invest in a company whose A/M value is -ve?
Check out the post here: https://acquirersmultiple.com/2015/10/negative-enterprise-value-a-primer/
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I just read the Acquirer’s Multiple while on a business trip. It was excellent and resonated with me because the approach is quite similar to my own. I will highly recommend it to other value investors.
Hi Mr Carlisle,
Just finished your A/M book and loved it.
One question if the stock #1 lowest am pick is already up 25% to date do we still pick that stock?
Thanks newbie am geek 🙂
I found your blog from the investors podcast and found your quantitative investing strategy quite interesting.
I was researching a stock I’m willing to invest in and it had a very low PE (1,7) for the last four quarters but when I tried the acquirers multiple I got a negative enterprise value (mainly because they’ve made huge investments) and a negative operating income. (because they’ve depreciated their huge investments on their income statement)
How should the Acquirers Multiple be calculated in this case?
+ What’s in your opinion the best book on stock/company valuation?
Have you done any work on ranking the AM stocks and selecting only the highest momentum ones?
Yes. It doesn’t help the returns.
I enjoy your work and think it’s really fantastic that you offer a free screener for large caps.
I was hoping you could elaborate on your reasons for excluding financials and utilities in TAM Large Cap 1000?
I do want some exposure to both sectors, do you think that your formula is a reliable way to find value there? If not, would a more traditional way to determine intrinsic value be better suited?
Thanks Joseph. The metrics don’t make sense for financials or utiilies.
Hi Tobias, glad I found this comment regarding the financial and utilities.
Have some questions…
#1. Should we exclude financials or utilities?
– Using EV/EBIT method, lots of insurance companies will be included at the moment.
– Like you said above, Joel Greenblatt also advised us to exclude financials and utilities.
– But, you also said that you have included a number of insurance on your interview with Bloomberg (on your ETF landing page I think).
#2. Regarding negative EV (I read your link and the article on Investopedia), my screening finds that a great number of insurance companies have negative EV, e.g., Allianz (-635B), AXA (-446b), Prudential (-300B). If I am getting the number right, does this mean these are great buys? Or, not really since these guys are too big for activist events?
#3. Great to see that you have tested momentum and it doesn’t help return. But… just want to be sure, we are talking about using the list of low EV/EBIT companies with a preference on momentum (e.g., >10% price increase in the last 6 months…) No difference???
Thanks so much for answering all the questions here… I will keep digging here…
This is related to my previous question…
If we want to be contrarian, then should we have no favor or fear towards financial and utilities sector? Should we apply another simple filter on PB ratio just to make sure they are cheap…?
But, I see that you have included BRK… It’s still a still 3.5X EV/EBIT… And, I love BRK, too. But, that’s not the point… Just wonder how do we reconcile that.
On a side note, I wonder if you have thought about the underlying characteristics that make the EV/EBIT less sensible to financial and utilities sector might one day “flow over” to the other sectors…
Tobias, just read AM and Quantitative Value last two weeks. Great reads! Quick question- do you still implement the franchise power formulas as part of your AM strategy?
Thanks Ben! No we don’t use it.
Have you every tried investing in the stocks with the lowest AM based on technical analysis. When they break through resistance or “break out”?
In your experience, what is the single most efficient method to decide when to sell?
I haven’t. Time-based or value-based selling is best.
After listening to you on the investors podcast, I’ve bought and read your new book, and have decided to gradually build a portfolio using the qcquirer’s multiple. I was hoping you could help med answer a questions.
I live in Denmark where taxation on stocks are 42 % no matter how long i hold them. In your book you mention holding winners for a year +1 one day for tax benefits. Since I don’t have this option, is my best option just to buy the stocks with the best acquirer’s multible and sell them whenever they leave the screen, no matter loss or gain or are there a better way to maximize my portofolio?
Yes, but don’t check more than quarterly. Follow the rules on the FAQ here: https://acquirersmultiple.com/2016/04/four-steps-to-implementing-a-quantitative-value-investment-strategy/
I’m sorry if you already answered this question, but I still have some doubts and I was hoping you could help.
I have startede using the screeners and am building a portfolio. So far I have understood that I should keep the winners for a minimum of a year and then sell the them. If the winners still are in the screener after a year I should hold until they leave the screener.
My question is when to sell the losers. I’ve read your book and the text in the link you send me above. But I am still not quite sure. Am I supposed to also wait a year and then sell if they are not in the screener or should I sell them as soon as they leave the screener, which could be after a shorter period of time? If the losers are still are in the screener after a year, I should hold until they leave, correct?
Bear in mind that I live in Denmark and the taxation on gains on stocks are always 42 % no matter how long I have been holding the stocks. Any loses are tax deductible in future gains.
I hope you have the time to help me understand this last bit.
Thank you so very much
Rebalance no more than quarterly. The best advice on applying the strategy is to follow the rules on the FAQ: https://acquirersmultiple.com/2016/04/four-steps-to-implementing-a-quantitative-value-investment-strategy/
Im looking at the free screener with the top 30 results. It appears that a few of those businesses could be cyclical and they look cheap on metrics basis due to being at the top of the business cycle. Does the screener adjust for this?
No it doesn’t.
Hello Tobias and Johnny,
I am about to complete the acquirer’s multiple book and would like to say thank you for writing that. Before I wish to start putting my hard earned money to test the back tested theory in the Aussie and Indian Market I would like to share this article from Howard Marks that I read some days back.
there was this paragraph that caught my attention:
“Quantitative investors program their computers to emulate behavior that was profitable in the past or that is expected to be profitable in the future. In other words, they set rules or formulas for their computers to live by. The key question is whether, in a competitive, dynamic and interconnected arena like investing, the route to profitability can be captured in a formula, and whether changes in the investment environment (perhaps caused by the very implementation of the formula) won’t negate the formula’s effectiveness.”
Do you think Quantitative Investing would have an edge over the market participants driven by greed/fear/anxiety/confidence etc…. how can that be narrowed down in a simple formula?
I was wondering if you had a timeframe on an ASX stock screener? I’ve been successfully using your methodology for a while now. But having that ASX screener would be of great value.
No time frame at present.
Loved the book! Honestly, after reading Greenblatt’s book I thought the same thing: if you could do just as well, if not better, just buying cheap rather than the combination of cheap and quality. So glad that you did the research to back up that thesis. It would have been one of those theoretical questions I would have pondered and probably acted on forever without knowing empirical evidence.
I consider myself the small cap value investor who favors the broken, cash rich companies. Has your research given you much insight into performance of those types of firms with a multiple below 3 or 5? Or as high 7? Your insights would be greatly appreciated.
Thanks for the kind words, Joe! Let me take a look and come back to you. My recollection is the returns go up as the multiple goes down–as you’d expect–but the opportunities become fewer, and it becomes increasingly difficult to fill a portfolio. The markets have also become progressively more expensive, so where in the early 80s there may have been an abundance of <3x opportunities, there are far fewer now, but <5x opportunities are delivering comparable returns. I'll take a look and come back.
Hi again Tobias,
After reading your comments, could I clarify whether I’ve understood them correctly?
– your best results would typically come from a portfolio of no more than 20 – 30 stocks per year;
– and that you should buy the top 1 – 5 TAM score stocks until you have a portfolio of 20 – 30;
– then hold it for 12 months;
– unless you’re selling the losers, which in that case, sell them before 12 months
Also to clarify, despite <3 being rare these days, if a <3 appears should you still buy it?
Thanks so much,
Hi again Tobias,
Just another question with the TAM – does the formula only take into account current years’ earnings or 5-year/10-year average earnings?
The reason I ask this question is if we take MU (Micron) for example. In 2018 they made $15.2B netting them a TAM of ~2.5, but in previous years they only made $3b, or even less $1b, netting them a TAM multiple of 7 – 38.
Obviously 2.5 is good, but 7 – 38 is bad, so what number do we use here? This years’ operating income? The lowest operating income? The 5-year average? The 10-year average?
One thing that left me wondering is that on what basis do stock get put on the list and off the list? I’ve noticed that with in the last 6 months which I’ve been following you the allocation has changed a few times. This is just a wild ques but does it have to do with the change in ROE or Ev/Ebitda.
Many thanks in advance.
Read your book Deep Value. Found it a very informative read. Lead me to watch many of your videos as well.
What is your opinion on Piotroski Score ( F Score). In your experience how useful have you found incorporating the F Score while constructing a Portfolio? Does it affect the Portfolio’s performance in a good way?
Thanks & Regards,
Nisarg Ganatra, CFA
Tobias, is there going to be refreshed backtest for 2017 and more particularly for 2018?
Yes, we’re working on it.
Wondering how do you think about shares with very high dividend yields that are within the screener at very low AC’s. Should any additional consideration be given to them?
I don’t look at it. High dividend payers don’t outperform.
Hi Tobias, Thanks for getting back. Interesting… why? Given, these are all undervalued positions, often taking a number of years to appreciate, can’t the higher dividend be viewed as an additional “premium” the holder gains? Or is it that these dividends% are later reduced- and so really the capital growth is the main engine that provides the significant outperformance regardless dvid%?
I bought the audiobook for the acquirer’s multiple, the book is very illuminating and intriguing. The author assures his readers that large cap 1000 screener is free forever. However, when you open that screener that is when you know that the author was telling the truth about “free forever”. I don’t mind subscribing but I hoped that what he said holds.
Yes, the screener is free. Always will be.
I just finished reading your book and signed up for your screeners. Great Book! I had a couple questions. I’m doing due diligence and looked at one of the top all cap stocks (Immersion Corp, IMMR). It’s a haptic/touch sense technology maker (licensor of it’s patents I guess?). I know in the book you warn several times about staying away from science projects or toys with no product and at the end without at least some past record of good historical earnings. Looking into IMMR and watching some videos of the company, it seems this company does not produce products but licenses it’s patents to others and has been involved in several lawsuits which have resulted in revenue? Would this company fit your definition of ‘staying away from science’ project or undeveloped product? Also, on another site (Tal Davidson’s analysis of Greenblatt’s Magic Formula), he places the five year ROC of IMMR at -89%. https://taldavidson.com/magic-formula-stocks-screener/ I know you mention trying to look to a consistent return on capital in the last chapter for earnings and looking at companies from a business perspective. Would this company still fit your acquirers model with this less than consistent ROC. I know these are risky out of favor stocks but I’m still trying to get my heard around the model. Also the first stock on the list (SIGA, Siga technologies) seems to be a one drug pharmaceutical that obtained a single large contract from the government for it’s smallpox drug? There doesn’t seem to be a consistent revenue stream here either or any past history? Would this stock also fit the model on a closer analysis and would the Acquirers model still be purchasing these stocks after this closer look. (I know there’s varying perspectives on the closer look that you mention in the book, quoting Amazon Chief Bezos saying sometimes it’s better to only know 70% of the information rather than 90%). Any thoughts appreciated.
I notice 2 stocks, RFP and EXPR, have been dropped from the screen in the past week. Is it because they have been pushed out of the top 30? Or have they changed and there’s now something wrong with them to disqualify them from the screen altogether? (eg: high short interest, new quarterly report data failed your forensic accounting screens)
Basically, should I sell them? Personally, I usually cut my losses if something fundamental changes for the worse after I buy. I am in a country with no Capital Gains Tax.
If they’re down and out of the screen, roll them out on the next rebalance date. Check out the guide: https://acquirersmultiple.com/2016/04/four-steps-to-implementing-a-quantitative-value-investment-strategy/
Hi, why is the dividend yield missing from the large screener? Thanks
It’s not missing. I can see it. What are you seeing?
I just finished reading your latest book, Acquirer’s Multiple.
It was very good.
Thank you for sharing your research.
Do you have the performance numbers for 2017 and 2018?
If so, please forward to me.
I have to do my due diligence before I buy your service.
I have emailed you the results.
Stock Ticker / ~Price(10.Aug.2018) / ~Price(16.AUG.2019) / Price Ratio
AABA / 68 / 69.90 / 1.03
DBX / 30 / 17.26 / 0.58
EQH / 22 / 19.85 / 0.9
SPOT / 190 / 146 / 0.77
BDX / 252 / 246 / 0.97
CMG / 502 / 809 / 1.61
CLX / 147 / 159 / 1.08
SNAP / 12.17 / 16 / 1.08
TSLA / 335 / 235 / 0.7
SGEN / 74 / 76 / 1.02
Total Ratio = ~1 (S&P500 = ~1)
I have had a look at this and a similar method from Mr. Greenblatts. I am working with far less data than the experts. I cannot confirm the returns. However, reading your books, Mr.Carlisles and Mr.Greenblatts and believing in value (fundamental) data analysis, I admit that I cannot find the cause of misalignment.
I was hoping you might be able to comment on this.
I don’t understand the question, Sebastian. Anyone else?
Do you exclude/avoid financial (or any other) sectors in Acquirer’s Multiple backtest?
Should we also exclude/avoid them when applying the formula in real-life?
Difficult to test. I buy them in my portfolio.
I’m a student and don’t have a lot of capital to invest. I only really have £500 to risk on my first trading venture. It’s likely that my AM portfolio would be very unbalanced. How important is it that you have roughly equal amounts invested in each stock on the screener? Is it possible to run this strategy without holding large amounts of each stock?
All the best,
Paddy, You can make regular purchases over the course of the year. See the FAQ for more: https://acquirersmultiple.com/2016/04/four-steps-to-implementing-a-quantitative-value-investment-strategy/
your large cap screener says it’s free but then it say for paying customers! am I missing something here?
It’s free. Takes a few moments after you sign up to get access.
The new after hours podcast is great, I think you, Jake and Bill make a good team, definitely keep them coming. I was happy to see that someone else is as interested as I am in uncovering what Renaissance Technologies has been able to create. An interesting theory I heard on another podcast is that Renaissance was able to lock up some type of data set in a long term contact that only they have access to. What that data set might be I have no idea but an interesting theory none the less. I look forward to more podcasts in the future.
Thanks Ryan! I’ve recorded my chat with Gregory Zuckerman. He wrote they find anomalies better than, or at least as well as, anyone else, and then put so much capital into the anomaly the opportunity arbitrage it away so no one else can find it. Smart.
Your podcast is great. Curious as to why there is such a delay between recording and posting. Your last one was recorded March 31 and didn’t go up for about ten days. In crazy markets like this, it makes the market commentary obsolete. Thanks!
Podcast is recorded live on Tuesdays at 1.30pm E / 10.30am P. You can subscribe here to be notified when it goes live.
I have your book AM and now subscribed to the site. I have a question about the small and micro cap screen – all week SPRT was at the top of the screen, but now it is completely off the list. They have not reported any financials since March 18th so I don’t know why they fell off the list … the stock price fell enough that it ended the week May 1st with a negative Acquirers Multiple.
Do stocks get kicked off the list if they become net-nets?
Also any thoughts about adding the TSX Venture? It’s tough up here man, TSX is all oil stonks.
Stocks fall out of the screen because earnings are updated or they deteriorate on distress, earnings manipulation of fraud measures.
I like the idea of including more Canada stocks from the TSX venture. I’ll do that in the next database refresh this Sunday.
Do you have a mailing address? Just want to send a Thank You note.
Yes: 21515 Hawthorne Blvd., Suite 200, PMB#82, Torrance, CA 90503
Do you anticipate a lot of noise/turnover with Q2 earnings reports coming out and all of the Covid induced revenue destruction? Did you backtest much turnover would have happened during previous sharp downturns like the 2009 crash?
I guess it’s more of an implementation question thing if someone was to use say the top 20 of 30 for a particular screen it could get noisy out there …. so far I’ve just been using for ideas/research purposes and to pick out a few good net-nets from the micro screen. Pretty sweet tool!
^ should have put another comment to what i wrote above and that is that if something falls out of the screen you don’t know if it’s the 31st stock in the screen (which is not a big deal) vs it’s now a dog b/c of some other reason
So if there’s a lot of turnover in the top 30 due to Covid becomes a bit harder to implement say a top 20 portfolio as you have to look into each one and why it fell out …. increased share price vs terrible short term covid earnings vs other reasons/fraud screen
I’ve had a chance to put into practice the methods in the book via the stock screeners over the past 6 months. I’ve found that, as you say, some stocks will x5 (such as Stamps.com) and others will linger around and not do much… However, it’s been frustrating watching so many linger while a few provide staggering returns. So, using the screener as a base, I’ve started to look for momentum in stocks from the screener. I may lose a few %tge points because I wasn’t invested from the beginning, but I’m still getting oversized returns. Right now I’m looking at REGI, FVE (turnaround with difficult financials), FTI, GPP… These have recently been showing movement… similar to Stamps.com. I’m also looking at earnings growth, and other factors, but measuring momentum along with the screener has really been working for me. Just wanted to share…
Hey Colton, I actually had the same question. But, Tobias mentioned that this hasn’t helped return. So, glad that to hear your experience on that. I thought of applying a 6-month momentum in my selection as well based on the idea in the book “What still works on Wall Street” (haven’t read it yet.)
I wondering if our attempt is futile in the long run given the nature of the reversion to the mean. (e.g., we might be over-extrapolating the uptrend and downtrend or no-trend. But, I guess using the EV/EBIT should already build in some margin of safety, so adjusting it somewhat should still be fine / provide a similar return.
Just finished reading the AM book. Impressed and intrigued to try it out. Would love to know each of the screen performed today. Would you please email that to me?
I have two questions: 1) Holding period, 2) the use of margin.
1a. Does following this strategy means every stock should be rebalanced / replaced once a year (assuming all of the stocks are the purchased at the same time)? I guess the idea of not holding longer than a year is to mitigate the impact of mean reversion? So, it’s better to cut the loss and cash in the profit once a year. So, we don’t double down on losers or keep the winners that might be wonderful companies (since that just adds to the human error. I guess Joel Greenblatt’s test already proved that model-alone performed better than the model + pros.)
1b. You mentioned that “Given time, many businesses turn out to be less scary, bad, or boring than they seem at first. The reason is mean reversion.” Does this mean we would potential buy the same stock that we bought this year if it reappear in the list next year? This is our way to “giving it time” if that stock is still in the list.
It seems we all have different ways of applying it (e.g., what and how to invest). Will be great to know how others are applying it if anyone cares to share.
2) I think Warren said in his shareholder letter that margin only accelerate something. I guess it’s a matter of interest rate, margin level, and risk appetite. Wonder what your view on this is. Also curious about whether asset managers have to report on the use of margin?
Thanks so much.
I actually have a third question…
Does the portfolio of 20-30 stocks have to come from the same country? What about a portfolio of 15 stocks from US-listed companies and 15 from JP-listed or HK-listed? Will this change the result? Or, should I look at this as two portfolio? Or, this actually count as widening the universe?
Another question on the application of the Acquirer’s Multiple (EV/EBIT) on financial and utilities sector…
If we ought to be contrarian to beat the market, then should we have no favor or fear towards financial and utilities sector. No? But, you mentioned that EV/EBIT doesn’t really make sense in those sectors… Should we apply another simple filter on PB ratio just to make sure they are cheap…? Given these sectors could be on the down of their cycle, which might be reverting to the mean…?
(I see that you have included BRK… It’s still a still 3.5X EV/EBIT… And, I love BRK, too. But, that’s not the point… Just wonder how do we reconcile that.)
On a side note, I wonder if you have thought about the underlying characteristics that make the EV/EBIT less sensible to financial and utilities sector might one day “flow over” to the other sectors…
Hi, guys. I am pretty much a newbie, but desperately trying to learn and NOT repeat my previous mistakes. I overall like your podcast, but thats a tough one to listen to — you never explain anything. I would compare listening to your podast to eavesdropping to some insider conversation, and it kind of sounds interesting, but most of it goes over my head. For example, you frequently laugh over some crazy valuation where the stock trades X times over the free cash flow — but what is the acceptable or “normal” multiple range for FCF? The same for EBIT or EBITDA — I can lookup and calculate those numbers myself (and I have) but what are the real world implications of these ratios?
By the way, loved your Acquirer’s Multiple book, and I can now calculate that multiple myself — but whats a reasonable number and whats a “too much” number? In any case, I thought may be you can bring it down to earth once in a while, and provide some education. Thank you
I have bought the audio book of your book: the aquirer multiple via Audible. However I don’t have access to charts and figures… Is it possible to get access to them? Thanks
Yes, they’re at https://acquirersmultiple.com/audible/
Thank you for all the hard work and the great books.
After reading your TAM book I realised simply buying an index etf would not be enough for me any more, so I set up a separate account and started applying your strategy using the Large Cap screener as a starter. Results are way better than the index these past 6 months.
Next, I tried to implement your Large Cap Screener using Portfolio123 (list of stocks is almost like yours but not exactly) and did a backtest for the past 10 years holding 30 stocks and rebalancing annually. The screener underperformed SnP500 a lot. I realise you put a lot more work into it than simply picking the top 10% of companies and applying TAM, but still I got very disappointed by the results (Total Return 260% vs 90% for the decade).
I have heard you say multiple times that value has underperformed in the past decade, but I could not find any hard numbers for this time period about TAM. Would you happen to have any backtesting results for these past 10 years ?
Thank you very much,
How can I find out what all the headers mean on the Screeners? Some of them I know (such as ROA) and Mkt Cap. Others, though, I have no idea what they are referring to such as E(r) or IV/P?
The guide is here: https://acquirersmultiple.com/2022/02/updates-to-the-screeners/