Deep Value Investing Strategy with Tobias Carlisle

When it comes to equity optimization strategies few (if any) intrigue me more than deep value investing.

With this in mind, we’re thrilled to have Tobias Carlisle join us in the ever expanding ‘Investing Legends‘ series.

Tobias is an accomplished value investor, the creator of The Acquirer’s Fund (ticker: ZIG), The Roundhill Acquirers Deep Value ETF (ticker: DEEP) and author of the Acquirer’s Multiple: How The Billionaire Contrarians Of Deep Value Beat The Market

We’ll specifically be covering ‘deep value’ investing strategy with a focus on process, position size, primary (and secondary) factors and contrarianism to name just a few.

Let’s turn things over to Tobias.

How A Deep Value Investing Strategy Works - Digital Art

Deep Value Investing Strategy

Hey guys! Here is the part where I mention I’m a travel vlogger! This “Investing Legends” interview is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor. 

Deep Value Investing Strategy with Tobias Carlisle and Deep spiral staircase going down
Source: Pixabay

These asset allocation ideas and model portfolios presented herein are purely for entertainment purposes only. This is NOT investment advice. These models are hypothetical and are intended to provide general information about potential ways to organize a portfolio based on theoretical scenarios and assumptions. They do not take into account the investment objectives, financial situation/goals, risk tolerance and/or specific needs of any particular individual. 

Value Investing = Contrarian

Q1) In the subtitle of your book ‘contrarian‘ appears as a standout word that often best describes value investing.
Is there any other endeavour where it is so effortlessly easy to be contrarian than investing?
Just side-stepping gingerly out of the milquetoast market-cap weighted equity indexes and aggregate bond territory is contrarian in and of itself apparently.
What is it specifically about value investing that brings such a label to investors who pursue this strategy?
Value Investing Is Contrarian - Digital Art
A1) Value investors are regarded as contrarians because we tend to ignore the high-flying, flavor-of-the-month “glamour” stocks and favor beaten down, unloved “value” stocks.
The term was defined in the landmark behavioral investing paper “Contrarian Investment, Extrapolation, and Risk” by Lakonishok, Shleifer, and Vishny (

They argue “naive extrapolation” investors tend to assume revenues, profits and stock prices continue on in one direction (up or down) when the data shows the better bet is to assume mean reversion, which is what “contrarian” or value investors do.

Deep Value Investing Offers Multiple Factor Exposure - Digital Art

Deep Value Investing = Multiple Factor Exposure

Q2) You’re known as being a deep-value investor. When I’ve x-rayed some of your funds, using third party applications  like Morningstar, I’m noticing a lot of extra goodies under the hood.

Secondary, tertiary, quaternary exposure to factors aside from just value.
Is this the primary benefit of deep-value investing where you cap positions at a specific number?
Being able to concentrate around a factor like value but then also have the secondary benefit of having exposure to multiple other factors?
A2) ZIG and DEEP follow the same strategy in different universes–ZIG is mid and large cap and DEEP is small and micro.
We first want stocks that can survive–a healthy balance sheet, positive cash flows and a business model that doesn’t pick up pennies in front of steamrollers.
Once a total loss of capital is off the table, we’re looking for the best risk/reward opportunities–the deepest discount to the nearest, highest fundamental returns.

The outcome is a high score on value and quality factors, but the process is old-school, bottoms-up fundamental analysis.

Handling Volatility as a Value Investor - Digital Art

Handling Volatility as a Value Investor

Q3) On your website you spell out the terms of market-cap size and volatility very clearly: “Larger stocks offer less volatility. Smaller stocks offer more return. More stocks offer less volatility. Fewer stocks offer more volatility.”

Assuming an investor doesn’t suffer from typical biases such as loss aversion and recency bias (while also possessing a cast iron stomach) how can they turn volatility into their friend?

Specifically, how can the ability to embrace, handle and withstand volatility be an advantage to investors seeking higher potential returns ?

A3) Expect big drawdowns.

Don’t chase returns.
Don’t find a stock you want to own and play with the DCF until you get the price you want.

Best approach is to be agnostic to what’s in the portfolio, only buying when the risk/reward is too good to ignore.

Value Funds and Positions - Digital Art

Value Funds and Positions

Q4) Let’s play a game where we have set position sizes for three value funds that are hypothetically being created from the bottom up.

We’ll start with a deep-value mandate and end with something watered down.

What can we expect at each level in terms of pros and cons for each fund?

A) 30-100 positions
B) 250-400 positions
C) 800-950 positions

A4) The challenge is always to balance the right amount of diversification to avoid total losses and enough concentration to capture returns.
ZIG is 30 positions and DEEP is 100 positions.
In DEEP, the rationale for more positions is that smaller companies tend to have fewer resources and less experienced management, or some reason why they are size-constrained.
When they work, the upside is huge, but the long right tail of return distributions (meaning most don’t do much, and most of the return is in a handful of names) means you need more positions to be more likely to capture those returns.
Mid and large cap stocks are more reliable, but don’t offer the same level of extreme outcomes.
Given that return distribution, fewer names delivers better returns.
More concentration helps when the names perform, and hurts when they don’t.
If you assume you have some method of identifying better performers, as you increase the number of positions, the returns will revert to the average.
250-400 positions will underperform 30-100.

800-950 will deliver the market return.

Acquirer's Multiple Screening Process - Digital Art

Acquirer’s Multiple Screening Process

Q5) Robust businesses with strong liquid balance sheets and a wide discount to a conservation value are some of the screens in your evaluation process.

For those who haven’t yet read your book can you describe the screening process of the Acquirer’s Multiple?

Since the book was published in 2014 have you since further refined any processes in 2022?

A5) Yes, I think the thesis for every position needs to be that it can perform whether it gets a multiple rerating or not.
I value companies the way Bruce Greenwald does–yield plus reinvestment–assuming no mean reversion in multiples PLUS I want them to be available at a wide discount to that valuation.

That way, if the market ignores them, we’ll do well, and if the market rerates them, we’ll also do well.

Dry desert dead scenery
Source: Pixabay

Value Investing Is Dead!

Q6) It seems so common these days to hear things such as value is dead.

The strategy no longer works.
Firstly, this is simply not true.
Using Portfolio Visualizer, from 2000 until 2022 (March), the US Total Stock market returned CAGR 7.37% and small-cap value and mid-cap value CAGR 10.11% each (they’re literally tied).

What do you think when you hear or read such things?
Value Investing Is Dead! - Digital Art

A6) It’s cyclical.

I’ve been doing it long enough to see value massively outperform, and massively underperform.
I think the key is the valuation process I outlined above.
Deep value performs in a value-friendly market.
In a growth-friendly market, business performance matters.
You need to be able to do both.

Neither works in a 1999/2000 or 2019/2020 market, but they work over the long haul.

Mid-Cap Value Investing - Digital Art

Mid-Cap Value Investing

Q7) When I was doing research into the historical performance of all asset-classes for US securities I was shocked to discover a few things.

Firstly, Mid Cap blend outperformed Small Cap blend (1972 to 2022).
Secondly, only small-cap value and micro-cap were ahead of mid-cap value out of 11 possible outcomes.

How do you feel about mid-cap investing and do you think it has a place in a value strategy where small-cap value seems to be the primary focus?

A7) Yes, it’s my favorite spot.

Has the returns of small and micro and the volatility of large cap, giving it the best of both worlds.
Mid cap is a totally underappreciated part of the market.

ZIG is heavily midcap.

Value After Hours Podcast - Digital Art

Value After Hours Podcast

Q8) Value After Hours is one of the great weekly investing podcasts.

Having recently just smashed 10,000 subscribers (congrats by the way!) do you have any favourite episodes in particular?

As a follow-up question, what are some things you’ve learned as an investor from your co-hosts, guest hosts and interviews on your show?

A8) Yes, I’ve learned a lot from both Jake and Bill (and all my guests).

I’ve much more flexible about valuation.
The changes above are a result of the many hours we’ve spent chatting.

I don’t change anything without testing it thoroughly, but I’m constantly examining my process to find the problems with it.

Delayed Gratification Lottery - Digital Art

Delayed Gratification Lottery

Q9) So the weirdest thing has happened recently.

As an attempt to encourage citizens to save, invest and learn about the miracle compound interest, a new lottery has been created.
The winner of 1 million dollars isn’t allowed to spend it right away.
Instead they’re forced to compound for 20 years tax-free at which time they’ll receive the funds to do as they wish.
Not surprisingly, it isn’t very popular and tickets are now being sold at 1/3 the initial price.
Because they were on sale your name was entered by a mate and you’ve just won!
The problem though is after doing a background check they’ve determined you’re not allowed to invest in anything value related.
Instead they’ve given you quality, momentum, yield, minimum volatility, equal weight, fundamentally weighted and market-cap weighted as your options.
You can pick just one.

Which one do you choose and why?

A9) Dang.

I am heavily value and quality biased, so to hedge my own exposure I need something like momentum.
It has a lot to recommend it.
One of the nice things about momentum is it changes to what is working–sometimes it’s value, sometimes it’s growth.

It’s imperfect, but it keeps you invested in roughly the right part of the market.

Uluru Ayers Rock in Australia
Source: Pixabay

Travel in Australia

Q10) I’m a travel blogger by day, so we’ll end off on a lighter night.

Any advice for some of your US friends traveling to Australia for the first time?
Where is one place they must visit and one Australian dish they simply must try?

Where in Australia would you like to visit someday that you haven’t had a chance to go to before?

A10) See quirky Melbourne for the arts, sport, bars; flashy Sydney for the beaches, and the clubs; the Gold Coast and my home town Brisbane for the beaches and the bars.

See the Great Barrier Reef, the Daintree Forest and Uluru (Ayers Rock).
The best Australian food is fresh Italian / Greek / South-East Asian fusion.
The beer, wine, seafood and steak are world-class.
I need to go to Perth, Tassie and the Northern Territory.

I’ll do a tour when the kids are old enough to remember it.

Connect with Tobias Carlisle - Digital Art

Connect with Tobias Carlisle

Thanks for the interview Tobias. Where can people find you on social media, websites and YouTube?

I’m on Twitter at

and my books are available at 

Deep Value Investing Final Thoughts - Digital Art

Samuel speaking: Thanks Tobias for taking the time to drop by Picture Perfect Portfolios.

Also, a big congratulations for opening the New York Stock Exchange just recently.

Important Information

Investment Disclaimer: The content provided here is for informational purposes only and does not constitute financial, investment, tax or professional advice. Investments carry risks and are not guaranteed; errors in data may occur. Past performance, including backtest results, does not guarantee future outcomes. Please note that indexes are benchmarks and not directly investable. All examples are purely hypothetical. Do your own due diligence. You should conduct your own research and consult a professional advisor before making investment decisions. 

“Picture Perfect Portfolios” does not endorse or guarantee the accuracy of the information in this post and is not responsible for any financial losses or damages incurred from relying on this information. Investing involves the risk of loss and is not suitable for all investors. When it comes to capital efficiency, using leverage (or leveraged products) in investing amplifies both potential gains and losses, making it possible to lose more than your initial investment. It involves higher risk and costs, including possible margin calls and interest expenses, which can adversely affect your financial condition. The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the official policy or position of anyone else. You can read my complete disclaimer here

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