The Acquirer’s Multiple review

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 to the zag – Not a new dance move

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.

Thy shalt revert to the mean

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.

 

 

 

 

 

 

In Buffett we trust

Carlisle’s theory, 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.

Is this really for the beginning investor?

The Acquirer’s Multiple, as a theory, may be an effective way to beat market returns. But the Acquirer’s Multiple, as a book, simply begs to be avoided. Firstly, 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.

Secondly, there are no new ideas presented 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 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. High risk does not necessarily equate to high returns.

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. In closing, if you are a new investor simply starting out in the world of stock market investing, I would recommend a safer approach to buying stocks. If you are an advanced investor, then surely there are more substantial books than this? Why zag when you can zig, eh?

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The Path of Least Resistance

With both books and people, I like when they come to the point quickly. If you can get your point across simply, quickly and accurately, that would be a worthwhile quality to have. Unfortunately this book does not have that quality.

This book is about creativity, and how it can be develop by using natural laws – similar to that of physics. Bodies always take the path of least resistance in achieving a task. If you pour water on an uneven surface, it always flows downards through the lowest grooves in the surface. And supposedly the author has a magic key to finding this path. I was taken in by the very interesting opening paragraph of the book when I was browsing it. And I decided to give it a try.

But there are a couple of reasons why I don’t recommend reading this book

  1. The long, winding path to nowhere – The book started off well. The author seemed to be creating a logical foundation on which to expound his theory. But within a few chapters it was evident that the author did not seem to be in any hurry to make his point. I feel that the main point of the book – the juicy content – should be revealed within the first third of the book. At this point I often decide whether it is worth going ahead with the rest of the book or to let it go.  As far as this book is concerned, I’m well beyond this tipping point, and except for a few insights (in the first 80 pages), the author doesn’t seem to present much in his theory of creativity – the so-called path of least resistance.
  2. Sell me some love – Another red flag for me is when an author constantly refers to other content that he has created – it could be another book, a course or a seminar that promises to give more helpful content to those who are truly seeking. I mean if you have written a book, let it contribute independently of any of the other creations that you have in your repertoire. Thus, coming across the ©, ®, or the ™ symbol in a book is downright jarring. It seems like a cheap attempt to cross-sell older stuff. It almost feels like someone scratching nails on a blackboard. The author drops references to his institute and courses quite a few times in the book. According to the author, these courses have helped creative people… well… create more effectively. Well, I thought that is what this book would have helped me do as well.

After these first eighty pages, I started to simply browse the book, hoping to find something engrossing and salvage whatever I could find from the rest of the book. But I realized that the rest of the book was equally filled with jargon that I could not bring myself to spend time on. And for that reason this book goes in my Abandoned pile for now.

I’m sure there are better books out there on creativity. Years ago I recall I read another book on the same topic, The War of Art. This book definitely was better filled with actionable content. And if you’re looking for a way to give the slump in your creativity a boost, getting your hands on that book would be better thant to simply follow the path of least resistance. 😉

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Figuring by Maria Popova – Book Review

The author of this book, Maria Popova is a well known curator of the excellent website brainpickings.org. Brain pickings has an eclectic collection of articles, books and other writings from various disciplines. Each post introduces a work followed by the author’s unique take on the creative work. This site has provided me tons of recommendations for what next to read. And that is why I jumped into this book as soon as i saw it on my recommended list on goodreads. If nothing else this book would be a treasure of trove of new paths to explore in my reading journey.

The book opens with a bang. It starts with a never-ending sentence that is probably one of the longest that I’ve ever read. I particularly enjoyed the chapter on Tyco Brahe and Kepler. It brought back nostalgia of when I first read Carl Sagan’s Cosmos and found out how these individuals were as big contributors to the field of astronomy to the more famous names such as Galileo. I had started reading this book even without finding out what the book was about. And I thought the first chapter was giving me an idea of what to expect.

But after reading a few chapters, I feel I may have abandon this book because I still don’t have a clear picture of what the author is trying to say. The book flutters around constantly and introduces a lot of characters at the cost of clarity and coherence.

However, a few chapters down, I lost interest in the material due to the constant flitting back and forth, especially when the author is referencing quotes by others or transitioning into a new character. “A century later”, “Exactly seventeen years later”, “Fifteen centuries ago,” etc. It seemed like the author was trying too hard to fit these disparate thoughts by different individuals into a single narrative. It seemed forced, in my opinion, more like a collection of essays glued into a single narrative.

Moreover the author has used a lot of flowery language at many places when something simple would have sufficed. The opening sentence(if you can call it that) is a case in point. When you quote a lot of writings by other authors in your work, and the language of the quote is simpler than your interpretation of it, there is something going wrong. It feels like the author is trying to make an impression but failing.

I very much wanted to like this book because of the incomparable work that the author has done in building and maintaining the quality of brain pickings. But sadly the same does not translate in this work by her. And this book figuring will stay un-figured for me for quite some time.

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