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.
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
Value Investing = Contrarian
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 = 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.
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
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.”
Specifically, how can the ability to embrace, handle and withstand volatility be an advantage to investors seeking higher potential returns ?
A3) Expect big drawdowns.
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
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.
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
800-950 will deliver the market return.
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?
That way, if the market ignores them, we’ll do well, and if the market rerates them, we’ll also do well.
Value Investing Is Dead!
Q6) It seems so common these days to hear things such as value is dead.
What do you think when you hear or read such things?
A6) It’s cyclical.
Neither works in a 1999/2000 or 2019/2020 market, but they work over the long haul.
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.
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.
ZIG is heavily midcap.
Value After Hours Podcast
Q8) Value After Hours is one of the great weekly investing podcasts.
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 don’t change anything without testing it thoroughly, but I’m constantly examining my process to find the problems with it.
Delayed Gratification Lottery
Q9) So the weirdest thing has happened recently.
Which one do you choose and why?
It’s imperfect, but it keeps you invested in roughly the right part of the market.
Travel in Australia
Q10) I’m a travel blogger by day, so we’ll end off on a lighter night.
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.
I’ll do a tour when the kids are old enough to remember it.
Connect with Tobias
Thanks for the interview Tobias. Where can people find you on social media, websites and YouTube?
My firm: https://acquirersfunds.com/
My funds are ZIG https://acquirersfund.com/ and
I’m on Twitter at https://twitter.com/
and my books are available at
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.