The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market

by Tobias E. Carlisle

The Acquirer’s How the Billionaire Contrarians of Deep Value Beat the Market is an easy-to-read account of deep value investing. The book shows how investors Warren Buffett, Carl Icahn, David Einhorn and Dan Loeb got started and how they do it. Carlisle combines engaging stories with research and data to show how you can do it too. Written by an active value investor, The Acquirer’s Multiple provides an insider's view on deep value investing. The Acquirer’s Multiple How the billionaire contrarians invest How Warren Buffett got started The history of activist hedge funds How to Beat the Little Book That Beats the Market A simple way to value The Acquirer's Multiple The secret to beating the market How Carl Icahn got started How David Einhorn and Dan Loeb got started The 9 rules of deep value The Acquirer’s How the Billionaire Contrarians of Deep Value Beat the Market provides a simple summary of the way deep value investors find stocks that beat the market.

Genres: Finance, Business, Nonfiction, Personal Finance, Economics, Money, Audiobook

161 pages, Kindle Edition

First published January 1, 2017

Reviews

[KN · Rating 2 out of 5]

I came across this book in a podcast that I regularly follow. And if I remember correctly, I had also come across this book mentioned multiple times on twitter. And I picked it hoping that it would give some new insight on the art of stock-picking.

The book is meant for beginners to the world of stock investing. The author makes this quite clear at the beginning of the book itself that it is going to be a non-technical book, unlike his earlier work Deep Value that is much more detailed work for the seasoned investor. I believe all books should have this kind of clarification – the kind of audience that they are catering to. It would make selecting the right book a whole lot easier for the reader. Moving on.

Zig. This is the first piece of advice that the author gives. What does this mean? In simple terms what the author is saying that in order to become a successful investor who can beat market returns is to zig when the rest of the world is zagging. Effectively, this is what being a contrarian means. Having ideas that are contrary to the popular opinion. This is one of the ways how good stock pickers get better returns than the rest of the investors.

The author makes a good point that you need to be right while having a contrarian view. If you’re right along with the market, you will only make market returns, not beat it. And if you’re wrong, then obviously you will lose money. But I wonder whether beating the market returns is really a priority for the investor who is just starting out. Wouldn’t he be satisfied making market returns? Of course, a simpler way would be to invest in an ETF that tracks the market.

The author also introduces the concept of mean reversion. Again to put it simply this means that stocks do not stay away from their true value for long. Things go back to normal. Think of it as a pendulum. Every time it moves in one direction, there is a greater force pulling it in the opposite direction. The momentum of the pendulum fights with this opposite force until both are equal. That is when the pendulum stops moving further and starts reversing. According to this concept, stocks that are undervalued are likely to rise in price whereas overvalued stocks are likely to fall down sooner or later.

The mean reversion principle is a popular and tested concept. But there is a big caveat that the author has chosen to ignore here. The famous economist John Maynard Keynes once said about the market, “The market can remain irrational longer than you can remain solvent.” This means that chances are that if you have bought into a battered stock in the hopes of having it rise according to the mean reversion principle, you could be waiting years (or decades) before it inches up. So while this principle may stand true theoretically, one needs to be aware of the time horizon of investing and the level of risk one is comfortable with.

Carlisle’s main point of the book, the Acquirer’s Multiple, is a new and improved way of looking at the attractiveness of a stock compared to market capitalizaion. He even claims that the Acquirer’s Multiple is better than the other famous and proven stock picking methodology – The Magic Formula by Joel Greenblatt. Apparently Carlisle claims that his way of picking stocks i.e. buying fair companies at wonderful prices is even better than Warren Buffett’s preferred method – buying wonderful companies at fair prices.

But for all the claims that the author makes on the superiority of his approach, he surely spends a lot of time explaining Buffett’s methods. There are a couple of chapters wasted on giving a history lesson on how Buffett started off with his famous cigarette butt approach of investing until his partner Charlie Munger knocked some sense into his head. Since then Buffett has practiced the wide-moat based investing philosophy.

Finally after a few chapters of talking about other contrarian investors, notably Warren Buffett and Carl Icahn, the author sets out to put forth his theory of the Acquirer’s Multiple. Even by definition this is not something new. The Acquirer’s Multiple simply uses part of the strategy that the Magic Formula uses. The author claims that in his testing, his approach beat the returns of the Magic Formula.

Again many of the points that he makes mirrors Buffets approach anyway. Carlisle liberally quotes Buffett from the annual Berkshire Hathaway shareholder letters. Take for example his focus on operating earnings. Buffett has always stressed the importance of operating earnings over other popular but artificially skewed measures such as EBITDA. Buffett and Munger have left no stone unturned in ridiculing the EBITDA.

What I disliked was that the author spends an inordinately long time detailing stories of other investors who have used different methods to get rich. In fact the theory of the Acquirer’s Multiple is not discussed until Chapter 5. After having explained his theory across a couple of chapters, again the author goes off in another tangent describing the exploits of Loeb and Icahn. Strangely, the chapter about Loeb has some inconsistent usage of tense, something that a sharp editor would have most likely spotted and corrected.

The Acquirer’s Multiple, as a theory, may be an effective way to beat market returns. The Acquirer’s Multiple, as a book, simply begs to be avoided. The entire content of the book can be condensed into a small but crisply written whitepaper. I continued reading the book while waiting for a connecting flight. In any other situation, I would have simply closed the book and moved on.

Unfortunately there are no new ideas present here that are revolutionary. Although the author claims that the Acquirer’s Multiple gives better results than Greenblatt’s Magic Formula, I am still skeptical. Moreover the latter was groundbreaking when it was introduced. It simplified and distilled for the average investor the advice of Graham and Buffett. It proved to be an easy and reliable framework to pick good stocks that were likely to give a good return, maybe even beat the market.

The Acquirer’s Multiple, on the other hand, does include a collection of amusing stories sandwiched between a few pages of theory. Thankfully, the book is really a short read, especially if you are aware of value investing even at a basic level. I finished it within a few hours, as the author claimed at the beginning.

If you’re a new investor simply starting out in the world of stock investing, I would recommend a safer approach to buying stocks. The Magic Formula combined quality companies with companies that were cheap. The Acquirer’s Multiple does away with checking the quality aspect. Doing so can be disastrous for stock market returns. If you’re an advanced investor, then surely there are more substantial books than this? Why zag when you can zig, eh?

[Spence Byer · Rating 3 out of 5]

Acquirer’s Multiple is simply: EV/Adjusted EBIT

Pros: fast read ~ 2hrs, solid short examples of unlocking value, great intro book for someone interested in value investing

Cons: extremely surface level teaching (realized this was Carlisle's intent after starting). If you've read other value investing texts you might want to skip this one.

Carlisle has a free stock screen on his website to spot lowest acquirer multiple stocks for large caps.

[Tim Kohn · Rating 3 out of 5]

Well written, readable, Tobias is a great financial writer. My rating suffers from reading this close on the heels of his 5-star (imo) Deep Value, of which most of the source material is derived. This is a great book as a lead in to Deep Value if finance isnt your first language...for that audience, I would rate it 4stars or better.

[Vijay Chengappa · Rating 3 out of 5]

I'm generally a sucker for decently written books on Value Investing, but find it increasingly hard to get many original insights in many of these books (Greenblatt's formula aside).

Probably a good idea to stick to the top 10-12 books in each field than attempt to read all the books in that subgenre (lots of overlapping information/same anecdotes & references)

[Jacob · Rating 1 out of 5]

mr author im not even gonna lie, you owe me 2 hours man. when you said this is a book "for beginning investors," i think you meant "for your 2-year-old nephew who is learning his ABCs."

the only advice you, my dear goodreads user, should heed from this book is to "zig" away from it, for it will only leave you disappointed and with fewer brain cells than you had (and now that i think about it--mr author, you owe me these back too).

[Lewis Corbett · Rating 5 out of 5]

I learned a lot from this book, I would strongly recommend reading it.

[Gianfran · Rating 1 out of 5]

Wonderful companies at a fair price or fair companies at wonderful price?

The aim of this book is to let you know that the latter is better and to do so the author fill the book with value investing stories, most of all about the oracle of Omaha (Buffett), that told or not don't change the outcome he want us to understand and represents the core idea of the book that could merely been told in some few pages.

The value he presents (The AM) helps you choosing the best stocks to have the better returns in the long term,
with which you can beat the classic Greenblatt Magic Formula that mixed wonderful companies with fair prices.

You could just use part of the Greenblatt formula (totally free on his website), the "Earnings Yield" and you can just obtain a result that
is very similar to that of the AM (the former for free, the latter don't).

[Jason Orthman · Rating 4 out of 5]

Another excellent book by Tobias Carlisle on the importance of value investing and high returning businesses. Simple, quick read with some of the core concepts from his brilliant ‘Deep Value’ book. (Kindle).

[J.D. Underwood · Rating 4 out of 5]

Good intro to value investing

It was easy to read and follow for a new investor. I’d like more on methods to value a company, though.

[Scott Olson · Rating 1 out of 5]

Trying to sell his web site

Trying to sell his web site. That is very expensive. I wasted my time reading the book. Don’t do the same.

[Luke Durbin · Rating 2 out of 5]

This is a very beginner book on an introduction to deep value investing. If this is the first investing you've ever read it'll be great. If it is the 20th, there's probably nothing new in it for you.

Essentially, the Acquirer's Multiple (a registered trademark) is the EV/EBIT multiple, a very commonly used multiple by investors. I have no idea why we needed a new name for this, other than because it's a far catchier title for a book. The whole premise of the book is that you can beat the market simply by buying the cheapest stocks in your universe, as defined by the EV/EBIT multiple. The EV/EBIT is a fine metric to use, but in my opinion it's no silver bullet. For example, if you were to use it today you would be loading up on oil and gas and iron ore companies at the very top of the cycle. (It should also be worth mentioning that the S&P500 has trounced Carlisle's fund in the 3 years to 30 June 2022, roughly the time of its existence. Sure, a shortish time period, but it's not even close).

Carlisle spends a lot of the book praising Warren Buffet (3 of the first 4 chapters are dedicated to well-known Buffett anecdotes) as being the world's best value investor, and rightly so. But he also spends a lot of the book saying "it is better to buy a fair company at a wonderful price than a wonderful company at a fair price". This is a direct contradiction because that quote is a direct inversion of how Buffett describes the way he invests today (and there is a whole backstory there about Buffett's own evolution as an investor).

In all, there are some good takeaways from the stories of other investors as well as some good general understanding about investing for the novice investor, but I would caution anyone wishing to base their entire investing philosophy and strategy on that suggested by this book.

[Isaac Chan · Rating 3 out of 5]

Didn't know that this was just a recap of Deep Value and his other ideas already out there, so thank fuck this book was short af lol.

The opportunity of returning a 2nd time to the same ideas and research presented by the author allowed me to regard his methodologies with much more (healthy) skepticism though, with the generous benefit of hindsight. For example, he worships that study by Maubossin about how all the companies in his sample mean-reverted on average, over time. And then he makes a case for the faith-based mean reversion deep value style. What about the shitty companies that flat out went bankrupt and dropped out of the sample? Without accounting for this survivorship bias, what's gonna happen when most people try to be smart and make a deep value 'shitty company' play is that it's gonna keep getting shittier and then go bankrupt.

His worship of Buffett is also getting kinda cringe. He says he can't identify any factors that contribute to Buffett's pure BUSINESS analysis (not equity analysis) of moat identification, but Greenwald has quantified 'franchise value' (EPV - NAV). I find that quantification pretty intuitive and practical. Tobias is being kinda lazy, or at least too quick, to attribute all of Buffett's 'moat identification' business analysis to genius, imo. If we attribute Buffett's returns to his moat identification, I feel like that could be argued by the standard coin-flipping luck.

[Eric Napier · Rating 3 out of 5]

I enjoyed this far more than I expected.
This is a modern spin on Ben Graham's timeless idea of buying ultra-cheap stocks. In it, Carlisle highlights how modern Buffett (constrained by size, timing, publicity, etc.) has departed from Graham and Dodd (and original Buffett, too) and how other value-investing giants (Marks, Grantham, Klarman, etc.) have stayed the course.
We've all heard Buffett and Greenblatt emphasize return on capital. Here, Carlisle provides the best explanation I've seen on why ROC matters. But the interesting part is what he does next. After explaining why ROC is a great predictor of returns (i.e., Greenblatt's "Magic Formula"), Carlisle argues that market forces inevitably erode ROC. Regression to the mean attacks excess ROC, excess margins, etc.
Thus, Carlisle argues that price (what he calls the Acquirer's Multiple) is a far better return predictor. Briefly, he claims that fair businesses at wonderful prices beat wonderful businesses at fair prices.
Carlisle also reports on his results backtesting the Acquirer's Multiple strategy. (According to Carlisle the Acquirer's Multiple outperformed Greenblatt's Magic Formula).
This is not a beginner book. However, if you've read and enjoyed Greenblatt's work (especially The Little Book That Beats the Market) then I recommend this as a worthy expansion/rebuttal.

[Randomor · Rating 3 out of 5]

The acquired multiple is an interesting concept to acquire for sure. So is mean reversion, which can be counterintuitive and meta. However if we assume the stock market is a multi dimensional puzzle, this can’t be the only feature we extract when making recommendations, yet that’s what the book recommends: mechanically pick 20+ stocks using its paid screener and jettison any personal signal processing and bias. The author also runs an ETF ZIG that follows the algorithm, with a 3 star Morningstar rating, which is not on par with SPY in ROI since its inception. Perhaps that’s why he urges us to be patient and tolerate this tracking error. I hope he is right, a simple algorithm with one dimension can be that powerful if one is disciplined, at least according to this book, and many other classic value investment books. However I’m a bit skeptical about its .79% fee which is contradictory to the automated nature of this strategy which should incur minimum overhead which are commonly associated with “active” management.

[Olivier Dardant · Rating 4 out of 5]

Quantitative value investing book. Tobias Carlisle does a good job highlighting how difficult it is to find companies with enduring business advantages. Most eventually fade down to average returns. However, cheaper companies with a lot of negative news priced in offer good upside without having to make a long term bet.

Reversion to the mean. It applies across all aspect of a business. Growth rate, profitability, multiple, and ultimately stock returns. Everyone assumes that a large company facing negative growth will never quite grow again. The reality is that most businesses are tough to dislodged, and weak growth follows stronger growth. That provides a good chance to buy an okay company trading very cheaply, which can be consistently done with the market consistently forecasting the current trend.

[James Last · Rating 3 out of 5]

Worthwhile

Sometimes skipped explaining things like the general idea of the cost of money and comparing gains from a business with putting the same money in bonds. He explained this mathematically but skipped more of the working than my simpleminded grasped. Otherwise, it is a necessarily bold book and appears to be evidence based. For it to have more credibility, however, it should be replicated by others with, crucially, their own backtesting system. He is, however, here performing a replication of Greenblatt's work so at least we can now say that has been independently replicated and possibly the outcome is something even better, The Acquirer's Multiple. I suppose the real test is our own money, and time. I'm seriously considering it, but another criticism is Carlisle did not immediately provide evidence, a chart, of how his method worked over time since the book was published or he discovered the idea. The possibility remains therefore that a favourable backtesting has been manufactured to make this idea appealing. I suggest he publishes a chart of the performance of the idea in the wild, even if it's only got a few years of data, in order to be truly convincing.

[Rithik · Rating 5 out of 5]

This is a wonderful book that explains how Investment gurus like Buffet and Graham made use of Machine learning and Statistics in their Financial Analysis. A few examples are
1. Using Magic Formula and ranking stocks over 30 years and comparing their returns to that of stock market's average
2. Using Acquirer's multiple (Value of Enterprise/Operating Earning) to find out more about Fundamentals of Company and apply it to many companies' stocks
3. Of course, Mean reversion. Fundamental mindset to adapt while investing is a fantastic tool because it is justified by Economics of markets and Business cycle of Economy.

Look for Wonderful companies at fair prices, but not fair companies at wonderful prices!

[Rishi · Rating 5 out of 5]

Simppe ideas and well written. Proven quant and screening strategies for the investor not interested in extensive individual business analysis.

It was an easy read with easy concepts to understand but with difficult strategies to execute unless you have a powerful screener. It looks like the author is selling a monthly subscription for his online screener to make it easy. The book drives people to the website. Either way, it was a good read overall and I would recommend it to those who are looking for strategies that don't enjoy extensive analysis and prefer an automated strategy for the long term.

[Russ · Rating 4 out of 5]

This is a quick but informative read on finding value priced stocks. The author exclaims his system and methodology for selecting the best priced stocks for price appreciation in the long term. It is NOT a get rich quick stock trading scheme. The advice seems solid with testing provided to support his opinions. The last quarter of the book is an advertisement for his stock screen subscription service. Regardless, if you are looking for a system to determine undervalued stocks and/or a layperson description of business valuation, this is the book for you.

[Brad Bevers · Rating 5 out of 5]

Reread this one after reading Greenblatt's Little Book That Beats The Market this month and its a great follow up. Carlisle tweaks Greenblatt's now classic 'magic formula' and uses one he calls the acquirer's multiple. The rest of the book explains why he does this and lays out a method where you can use the formula yourself to beat the market. He also points you to his website where you can use the screener for free. Well worth reading . . . and if you don't want to do the work yourself but like his method he now has an ETF that uses the method itself.

[Bryce Young · Rating 5 out of 5]

Very fun. Easy to be sold on the thesis, since it is fundamentally Graham-style value investing. At first glance, it seems almost scandalous that his main thesis directly contradicts buffet, but he does so in a way that shows honor to insights, while his reasoning and backtesting, make it hard to argue with. The contrarian nature of the strategy make it attractive, but I’d like to actually try it in a “safe space” first.

I want to read it again, and have offered to share it with others already. Went about it in sort of strange way, having not yet read Greenblatt.

[Nick Klomstad · Rating 5 out of 5]

Concise and Clear. How to apply concepts is spelled out clearly. Data to back up claims although as we all know: past performance does not guarantee future results. Uses examples from investing greats like Buffett and Icahn to illustrate efficacy.

I will give these ideas a try (with patience, of course)

This book might be better rated in 20-30 years when my "$10,000 has compounded north of 16% per annum" as the writing purports these concepts deliver.

[Yugal Jindle · Rating 3 out of 5]

Felt more like a long article trying to be a book, parts of it were repetitive and multiple tangential stories.

The key takeaway is simple,
that ignore quality since most businesses will revert to mean as very few have real moats. Hence you can make do better than the magic formula

Good explanation on why the mean reversion happens, and how Enterprise value makes much more sense than market cap.

Must read especially if you’ve read magic formula.

[Jake Huang · Rating 5 out of 5]

The whole book can basically be summarized into 3-words: reversion to the mean (yes, I know that technically is 4-words, but it sounds "better" to say 3-words, and plus, I think it's OK to omit the "the" anyway). It largely has reflected what I've seen in the stock market, and I especially appreciate the section which says that reversion applies even to "losing" companies (i.e. companies which are not profitable), as those companies could eventually turn around—and their stock prices.

[Crt · Rating 4 out of 5]

I bought this book because I listened to many podcasts with the author who is extremely generous with his time and explains his method very well.

His book has finally inspired me to actually invest some money based his method. Note that he also provides access to a free screener for large cap stocks.

[Daniel Deptula · Rating 5 out of 5]

A short introduction to cigar-butt style value investing. As the author has explained in a various podcasts, it was written to be understood by an audience outside of finance-related professions: I think this goal has been achieved. Will recommend to anyone interested in a quantitative-focused approach to deep value investing.

[Jimmey · Rating 5 out of 5]

A new perspective

So much of chase for growth stocks and momentum investing in recent bull run (2017). And then this book says value beats everything. Markets beaten by growth stocks which are beaten by moat stocks but value beats them all. This one is must read.
Book on mean reversion

[Suhrob · Rating 4 out of 5]

Well written, non-technical book with an interesting thesis. It builds on Deep Value, where most of the details can be found. Carlisle has fascination with financial history, so even in a short book quite a lot of pages are dedicated to historical case studies, which are not necessary for the thesis. Nonetheless I do enjoy these bits too.

[Nidhi · Rating 3 out of 5]

There are things which are new to learn but most of the statements are repeated many times, which makes it loose its worth.
Overall the book was precise the content was too less but good. However, for what it matters it could have been completed in less than 100 pages.
It looks writer had few standard statements which he used over and over almost after 2-3 pages.

[Amrut · Rating 5 out of 5]

One of the rare, easy to read and understand book you always need to have on your desk as a value investor. Also gives a peek into the minds of the great investors and private equity firms and how they think when they want to takeover or buy stake in a company. Follow the simple, concrete rules in this book and beat the market over long term. Must read!