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Josh Payne and the folks at Quantopian ran some tests on the performance of the acquirer’s multiple and Joel Greenblatt’s Magic Formula.

I have argued in Deep Value and Quantitative Value that the acquirer’s multiple (enterprise value / operating earnings) tends to outperform the better known Magic Formula although it is only one-half of the Magic Formula, which also includes return on invested capital. Josh and Quantopian wanted to test that idea in the Quantopian backtester.

They tested a few variations of operating earnings, including EBIT, EBITDA, and EBITDA – Cap Ex. The results were recorded in their notebook, which you can view on the site by clicking here and finding the red “View Notebook” button to the bottom right of the first screen. Here are some of the backtest results:

Quantopian Backtest

After optimizing the results, Josh and Quantopian conclude:

Taking a look at the Cumulative Returns, Sharpe Ratios, Max Drawdown, Calmar Ratios, Annual Returns, and Annual Volatility we see that the Acquirer’s Multiple beats the Magic Formula in almost every category except drawdown and annual volatility. However, given the Sharpe ratio and Calmar ratio, it seems that the volatility and drawdown is for good measure.

..

In short, Magic Formula has slightly better performance with defensive metrics like volatility and drawdawn, but the superior returns that the Acquirer’s Multiple provides proves to be worth it, as encapsulated in metrics like Sharpe Ratio and Calmar Ratio.

Simpler, it seems, really is better in this case.

Quantopian has a really cool feature: You can grab the source code for the acquirer’s multiple backtest and run variations of it using Quantopian’s backtest data, or test your own ideas. Check it out here.

You can also check out the top acquirer’s multiple stocks in the largest 1000 names for free on the acquirer’s multiple site.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

[Sponsored Post]

The London Value Investor conference is the largest gathering of Value Investors in Europe and is Moderated by Richard Oldfield and David Shapiro. It will take place on Wednesday 20th May at the Queen Elizabeth II Conference Centre in Westminster, London. The conference will feature well known investors such as Charles Brandes, Dato’ CHEAH Cheng Hye, Jonathan Ruffer and Neil Woodford.

At the 2015 Conference, the following speakers will provide valuable insights in to their methods and approaches as well as giving specific investment ideas. The full line-up:

  • Neil Woodford, Woodford Investment Management
  • Charles Brandes, Brandes Investment Partners
  • Jonathan Ruffer, Ruffer LLP and Auckland Castle Trust
  • Dato’ CHEAH Cheng Hye, Value Partners Group
  • Hassan Elmasry, Independent Franchise Partners
  • Nathaniel Dalton, Affiliated Managers Group
  • Tim Hartch, Brown Brothers Harriman
  • Johan Du Preez, Eastspring Investments
  • Bernd Ondruch, Astellon Capital Partners
  • David Shapiro, Towers Watson (Moderator)
  • Richard Oldfield, Oldfield Partners (Moderator)

A key feature of the conference is the 10-15 minutes dedicated to audience Q&A which is led by Richard Oldfield of Oldfield Partners and David Shapiro from Towers Watson.

This will also be a unique networking opportunity as this conference is the largest gathering of value investors in Europe, we expect there will be 400 paying delegates present this year.

Click here to learn more.

 

I had a lot of fun recording an interview with Stig Brodersen and Preston Pysh of The Investors Podcast on one of my favorite subjects, deep value investing. Click this link or the caricature of my head to be taken to The Investors Podcast:

The Investors Podcast Caricature

 

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

[Sponsored Post]

The London Value Investor conference is the largest gathering of Value Investors in Europe and is Moderated by Richard Oldfield and David Shapiro. It will take place on Wednesday 20th May at the Queen Elizabeth II Conference Centre in Westminster, London. The conference will feature well known investors such as Charles Brandes, Dato’ CHEAH Cheng Hye, Jonathan Ruffer and Neil Woodford.

Discounted tickets are available through Greenbackd–see below for more information.

At the 2015 Conference, the following speakers will provide valuable insights in to their methods and approaches as well as giving specific investment ideas. The full line-up:

  • Neil Woodford, Woodford Investment Management
  • Charles Brandes, Brandes Investment Partners
  • Jonathan Ruffer, Ruffer LLP and Auckland Castle Trust
  • Dato’ CHEAH Cheng Hye, Value Partners Group
  • Hassan Elmasry, Independent Franchise Partners
  • Nathaniel Dalton, Affiliated Managers Group
  • Tim Hartch, Brown Brothers Harriman
  • Johan Du Preez, Eastspring Investments
  • Bernd Ondruch, Astellon Capital Partners
  • David Shapiro, Towers Watson (Moderator)
  • Richard Oldfield, Oldfield Partners (Moderator)

A key feature of the conference is the 10-15 minutes dedicated to audience Q&A which is led by Richard Oldfield of Oldfield Partners and David Shapiro from Towers Watson.

For a short time you can get a£120 discount by using “GREENBACKD-20MAY” when booking (expires 14th March 2015). Click here to use the discount code.

This will also be a unique networking opportunity as this conference is the largest gathering of value investors in Europe, we expect there will be 400 paying delegates present this year.

Click here to learn more.

 

Click here to watch a recording of last night’s seminar on “Portfolio Construction, Concentration and Diversification for Value Investors.”

Click here to take advantage of the offer–the first month with Singular Diligence for just $10before midnight tonight.

Just a quick reminder that my webinar“Portfolio Construction, Concentration, and Diversification for Value Investors” starts in 30 minutes.

Seats are filling up fast so you’ll want to join the webinar room now to secure your spot.

Click here to register now.

Already register for today’s webinar? You should have received a custom link via email when you registered.

Can’t find the link? Click the registration link above to get a new one.

Tomorrow I’m hosting the live webinar Portfolio Construction, Concentration, and Diversification for Value Investors.” 

There are only a few spots available in the room. The webinar will focus on portfolio construction and position sizing for value investors, including the philosophy of concentrated investing and the application of Kelly theory.

The webinar is tomorrow at 7pmET.

Click here to secure your spot in this free, educational event.

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