DEEP VALUE INVESTING – PICK YOUR STRATEGY AND STICK TO IT!

I just want to start by saying thanks to Stig and Preston for the opportunity to write here at ‘We Study Billionaires – The Investors Podcast’. It’s an absolute honour to be part of the team. It was funny how I originally found the guys.

How did I find, “We Study Billionaires – The Investors Podcast”?

Part of my daily routine has always involved jogging while listening to a investing podcast. I type ‘value investing’ into iTunes and listen to whatever podcast I find. One day i found a podcast called, “We Study Billionaires – The Investors Podcast”, with two blokes called Stig and Preston. These guys were chatting about books they’d read on billionaires, and for some reason it resonated with me.

Like you, I was new to investing and looking for guidance on a investing strategy that would suit my personality. I’d listened to dozens of investing podcasts. Most used terms like, discounted cash flow, net current asset value, portfolio management, and fundamental analysis, and I didn’t understand any of them.

Around the same time, I was watching a series of YouTube videos called ‘Talks at Google’. I heard a presentation called Deep Value, by an Australian guy called Tobias Carlisle. I’m Australian, so at least I could understand him. His presentation was based on his latest book ‘Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations”.  Here’s the video.

Tobias is like a modern-day Ben Graham. Graham was a very cool investing dude from many years ago. He was chatting about the idea of ‘Deep Value Investing’, which for me as a novice investor sounded interesting. I can remember not understanding a word of what he was saying but at the same time thinking somehow this makes sense.

I must have listened to that presentation half a dozen times to try to figure out what the heck he was talking about.

It’s fair to say, Tobias Carlisle’s presentation changed my life!

Tobias is like a modern day Ben Graham. Graham was a very cool investing dude from many years ago. He was chatting about the idea of ‘Deep Value Investing’, which for me as a novice investor sounded interesting. I can remember not understanding a word of what he was saying but at the same time thinking somehow this makes sense.

I must have listened to that presentation half a dozen times to try to figure out what the heck he was talking about.

It’s fair to say, Tobias Carlisle’s presentation changed my life!

So, you can imagine my surprise when I tuned into my new favourite investing podcast, “We Study Billionaires – The Investors Podcast’, and they’re interviewing my new investing guru, Tobias Carlisle – EP25: Deep Value Investing – With Tobias Carlisle

Tobias chatted about his book and how he applies Deep Value in the real world.  Stig and Preston seemed open to the idea of an alternative strategy to the traditional Warren Buffet methods.

I gotta tell you, it was like my investing universe came together. I decided at that moment that the Deep Value strategy was for me, cause Stig and Preston ‘liked’ it.

What is Deep Value Investing?

Tobias would explain it much better than me, but put simply, it’s a mechanical method of investing, that requires little or no human intervention. You’re not trying to calculate the future value of a company based on discounted cash-flows, or trying to buy companies that are valued at less than their net current asset value. We use something called ‘The Acquirer’s Multiple®’.

The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows:

Enterprise Value / Operating Earnings

Tobias says, the more humans intervene in their own investing strategy, the less likely they are to succeed. In fact, mechanical screens have outperformed humans infinitum. If only we could get out of our own way!

So, to start my deep value investing career, I went to Tobias’ site, ‘The Acquirer’s Multiple’, where he runs a ‘stock screen’, and I followed the steps to his investing strategy.

I know what you’re thinking, “How can you simply follow a mechanical screen?”.

My response is always the same. If you’re happy with your investing strategy, and it fits with your personality, and you’re getting results, then good for you. If however, you’re continually worried about which stocks to buy, how to value them, when to buy them, how long to hold them, how many to hold, and when to sell them, then maybe a mechanical investing method would suit you better.

If you think having a mechanical screen eliminates all of your investing stress, then think again. My international share portfolio has gone down by 25%, up by 15%, and  back to level, but you know what, I don’t care, I just stick to my strategy!

As an Deep Value investor, you need to forget about what happens day to day and month to month. Do I like to see my stocks dropping by 25%? No! Do I like to see them rise by 25%. Yes. Do I buy or sell based on this? No!

Pick Your Strategy and Stick to it!

The best investors of all time have rigorously followed their strategy, and that’s what’s made them successful! It is better to follow a mediocre strategy rigorously than to keep chasing performance.

As humans, we hit the panic button when our stocks fall significantly, and get overexcited when they rise but, what we need to do is chill out! Trust your strategy and stick to it, otherwise you’re in for a life of out-performance in the stock market.

Tobias has graciously let me set up a little project on his website. I run my international stock portfolio (live) there, using my own money. Every month I provide an update regarding the portfolio’s performance, together with comprehensive analysis of my next two stock picks.

My International Stock Portfolio (live)

Here’s my international stock portfolio (live) as it stands at the time of writing (03/01/2016):

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