The Acquirer's Multiple
TRADE-OFFCarlisle argues cheapness alone (EV / operating earnings) beats the Magic Formula because high returns on capital tend to mean-revert, so the quality rank adds little.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 11.8% | 8.9% |
| Return per unit of risk (Sharpe) | 0.64 | 0.65 |
| Worst fall (max drawdown) | -65.1% | -52.6% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 12.5% a year against 12.4% for the benchmark; Sharpe 0.64 in the training years, 0.64 after.
After 25 bps of trading costs: 10.7% a year. EDGE OVER RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 9.4% | 19.1% |
| 2000s | 11.9% | -2.6% |
| 2010s | 10.3% | 11.6% |
| 2020s | 16.7% | 14.1% |
// THE IDEA, AS PUBLISHED
Tobias Carlisle, 'Deep Value' (2014) and 'The Acquirer's Multiple' (2017) · 2014
- Acquirer's Multiple = enterprise value / operating earnings (EBIT)
- Buy the 30 lowest multiples above a market-cap floor, equal weight
- Rebalance annually; expect ugly holdings
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:41 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.