TIP 025 : Deep Value Investing - w/ Tobias Carlisle (Investing Podcast)
Mar 7, 2015
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Tobias Carlisle, author of 'Deep Value,' shares insights on outperforming the market, contrarian views, and determining when to sell stocks. The episode explores value investing strategies, optimizing capital gains, and hidden values in companies like Berkshire Hathaway.
Deep Value investing focuses on identifying undervalued stocks at their cycle lows.
Investing in worst-performing companies with declining earnings can yield significant returns.
Enterprise multiple stands out as an effective metric for selecting fundamentally strong companies.
Deep dives
Overview of Toby Carlisle's Book on Deep Value Investing
Toby Carlisle introduces the concept of Deep Value investing, highlighting the approach contrarians and activist investors use to value companies thoroughly. He explores the notion of mean reversion, where businesses cycle through periods of high and low returns, emphasizing the importance of identifying undervalued stocks at the bottom of their cycle.
Analyzing the Performance of Worst Performing Companies
Through his research, Toby Carlisle examines how investing in the worst performing companies, based on earnings trends, can yield significant returns. By comparing the performance of the worst-performing companies against the best ones, he demonstrates how the former outperformed the latter by a substantial margin. This approach challenges traditional investment beliefs by showing the potential of acquiring undervalued stocks with declining earnings.
Testing Value Metrics for Performance
Toby Carlisle rigorously tests various value metrics to determine their effectiveness in generating superior returns. He emphasizes the importance of metrics such as enterprise multiple, earnings before interest and taxes, for assessing company valuations. By evaluating a wide range of formulas, Toby identifies the enterprise multiple as a standout performer, showcasing its ability to outperform other metrics in selecting fundamentally strong companies for investment.
Application of the Acquirer's Multiple in Stock Selection
Toby Carlisle elaborates on the acquirer's multiple, a metric that aids in identifying undervalued stocks based on operating earnings and enterprise value. By focusing on companies with strong operating earnings relative to market capitalization and debt, investors can uncover hidden value. This approach seeks to find businesses with robust fundamentals that may be disregarded by traditional valuation methods.
Challenges in Evaluating High PE Ratios
Toby Carlisle navigates the discussion on high PE ratios, exploring scenarios where elevated ratios may be justified or considered speculative. He contrasts differing investor approaches, highlighting the significance of valuation methodologies in assessing high PE stocks. By delving into the nuances of PE ratios and the implications for value investors, Toby sheds light on the complexities of stock evaluation and decision-making.
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