The Acquirer's Multiple

Carlisle's argument is that the cheapest stocks, measured the way a buyer of the whole company would measure them, beat both the market and the quality-at-a-fair-price approach that Buffett made famous. His yardstick, the acquirer's multiple, divides enterprise value (market value plus debt, less cash) by operating earnings. It counts debt that a simple price-to-earnings ratio misses, and it comes from the analysis used by corporate raiders and buyout firms.

The case rests on mean reversion: high profits attract competitors and fade, while depressed businesses often recover or attract buyers and activists. Carlisle backs this with simulations from 1973 to 2017 in which the multiple beat Joel Greenblatt's Magic Formula and the S&P 500.

Carlisle, a former mergers lawyer and activist hedge fund analyst who founded Acquirers Funds, wrote this as a popular distillation of his denser earlier books, Deep Value and Quantitative Value (with Wesley Gray). At about 160 pages it reads quickly.

The caveats are the usual ones for a backtest-driven book. The results are simulations, reviewers did not test their robustness, and the qualitative side of deep value gets less space than the screen. It is a good introduction for anyone building or judging a value screen, and a useful counterweight to the idea that only wonderful businesses are worth owning.

1. Price the whole company. Enterprise value to operating earnings captures debt and cash, so it flags companies that look cheap on earnings but are loaded with liabilities, and the reverse.
2. High profits fade. Carlisle's core claim is that profitability mean-reverts, so paying up for today's high returns often means paying for something competition will erode.
3. Margin of safety beats quality. In his simulations, the cheapest stocks regardless of quality outperformed Greenblatt's mix of cheap and high-return companies.
4. Moats are hard to spot. Few businesses have durable advantages, and those that do still see them wear down, which makes moat-picking a less reliable edge than price.
5. Simple rules guard against yourself. A mechanical screen applied consistently keeps an investor from abandoning cheap stocks just when they feel worst to own.

The book's twelve short chapters move from history to method to practice, closing with an appendix of simulation details.

1. Contrarians who zig. Carlisle sets out the deep value idea: buy what the crowd is selling, often when a business looks worst, and let mean reversion do the work.
2. Buffett before quality. Chapters on Buffett's early partnership, his takeover of Berkshire Hathaway and his later shift to wonderful companies at fair prices show how the most famous value investor changed his method.
3. Testing the formulas. Carlisle examines Greenblatt's Magic Formula from The Little Book That Beats the Market, then introduces the acquirer's multiple and shows his test results against both the formula and the index.
4. The mechanics of deep value. He explains why undervalued stocks rise and expensive ones fall, and why durable moats are rarer and less profitable than investors assume.
5. Raiders and activists. Chapters on Carl Icahn and a newer generation of activist managers show how buyers who target cheap, unloved companies force value into the open.
6. Rules. The book ends with the art of deep value investing and eight rules, including going against the crowd, demanding a margin of safety, distrusting high growth and using simple rules to avoid errors.

The Acquirer's Multiple: 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 covers: 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 stocks: 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 Multiple: 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.