In their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Grantham’s Everything Bubble. Here’s an excerpt from the episode:
Bill: Yeah, we can. I guess it ties in nicely, Grantham’s everything bubble. I listened to the podcast that he did with Consuelo Mack three times.
Jake: Stay away from high places. [laughs]
Bill: Well, I tried to really think about what he was saying. He’s clearly out there on this bubble call, and he’s done it pretty successfully, I guess, in the past. I think that if I can boil it all down to one variable, his argument is– Shiller came out and he said the CAPE is higher than normal, but it’s priced reasonable when you compare it to interest rates. Grantham is like, well, that’s not really– I think what he said is that, that’s not really like a fair way to look at the world. I think if you really boil it down, his argument is that the wealth effect is what everything is a bet on right now, and when that bet goes away, we’re sitting on a bubble of epic proportion. He then advocates something like, I don’t know, 70% emerging market value and 30% cash if you have the stomach for it. I’m not quite sure how the emerging market value– Uh-oh, we’re still live. It works.
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
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*
It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com.
The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT.
Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up.
Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC.
He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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