ETFs, Deep Value and Lessons From Podcasting w/ Tobias Carlisle, Acquirer's Funds (Episode 31)

Episode Summary

Executive Summary: Tobias Carlisle discusses his deep-value investing framework, how he runs two ETFs and two podcasts, and why he blends valuation with quality, momentum, and forensic accounting. He argues that markets are currently detached from fundamentals due to extraordinary liquidity and retail speculation, but that distressed, cash-generative, undervalued businesses still offer the best asymmetric opportunities over time.

Main Topics: Carlisle’s investing process and daily workflow (Priority: 5/5): He explains how he structures his week around podcasts, ETF management, and family life, emphasizing routine and compliance constraints around discussing his funds publicly. Deep value ETF strategy and portfolio construction (Priority: 5/5): The conversation covers ZIG, his long/short deep-value ETF, including how it combines cheap long positions with short exposure to expensive, financially weak companies with negative momentum. Shorting, momentum overlays, and avoiding crowded narratives (Priority: 5/5): Carlisle details why valuation alone is insufficient for shorts and how momentum screens help avoid painful shorts like Tesla and other story stocks. Market conditions in 2020 and retail speculation (Priority: 4/5): He argues the market was ignoring severe economic damage, propped up by Fed liquidity, fiscal support, and speculative retail trading around names like Hertz and Chesapeake. ETF structure versus other fund vehicles (Priority: 4/5): He explains why ETFs are attractive for tax efficiency, liquidity, and transparency compared with limited partnerships, mutual funds, or managed accounts. Edge, process, and mental discipline (Priority: 4/5): Carlisle frames his edge as rigorous testing, consistency, and forensic accounting diligence rather than discretionary stock picking or market timing. Podcasting, learning from other investors, and future plans (Priority: 3/5): He discusses his podcast as a way to learn from a wide range of fundamental investors and mentions his new DEAP ETF and interest in small/micro-cap deep value.

Key Arguments: Deep value works best when combined with quality filters: cheap valuation, strong cash flow, solid balance sheets, buybacks, and low financial distress. Shorting only on valuation is dangerous; negative momentum is essential to avoid stocks that are expensive but still loved by the market. Many high-growth or subscription-style businesses are better understood as hit-driven content businesses, not stable recurring revenue software businesses. Retail trading hype is amplified by media coverage, but Robinhood-style flows are likely too small to drive the market alone; the bigger influence may be market microstructure and options-related hedging. The 2020 rebound was aided by extraordinary Fed and fiscal liquidity, but Carlisle believes fundamentals will eventually matter and volatility could persist for years. ETFs are superior for active strategies because they can reduce taxable distributions, offer daily liquidity, and allow investors to see holdings transparently. His edge comes from testable rules, extensive public writing, and forensic accounting diligence that catches items hidden in the notes and normalizes financials for comparability. He prefers businesses that can compound intrinsic value through cash generation and buybacks rather than paying up for narrative-driven growth. Value underperformance may persist for long stretches, but the strategy is based on full-cycle evidence rather than recent trends. Investing skill is hard to separate from luck in the short run; long-term results come from many small asymmetric bets rather than constant correctness.

Data Points: Children: 3 - He says his kids are 6, 5, and 2, and the youngest drives his early workday start. Podcast days per week: 2 - He records podcasts on Tuesday and Thursday. ETF work days per week: 3 - He runs ETF-related work on Monday, Wednesday, and Friday. ZIG structure: 130/30 long-short - His Acquirers Fund is described as a long/short 130.30 ETF, though exposure can vary. Long book size: 30 names - He says the portfolio is built around 30 long names. Short book size: 30 names - He says the portfolio is built around 30 short names. Value-screen metric: Acquirer’s multiple (operating income / enterprise value) - He uses this as the first screen for cheapness. Short momentum lookback: 12 months and 3 months - He uses these timeframes to avoid shorting stocks that are still in strong uptrends. Market drawdown reference: ~30% - He references Buffett saying the market was down 30% at one point in 2020. CBO outlook: Damage may persist to 2027–2030 - He cites CBO-style estimates that business/economic damage could last years. Robinhood market share: Very minuscule percentage of daily liquidity - He says retail traders get outsized media attention despite limited actual market influence. Hertz equity rally in bankruptcy: 400% - He cites Hertz as an example of speculative behavior in bankrupt equity. Hertz debt price: 6–7 cents on the dollar - He notes the debt traded far above the economic position of the equity in bankruptcy. ZIG holdings growth: ~5% top-line growth - He says the portfolio’s long book grows revenue modestly. ZIG holdings bottom-line growth: ~15–20% - He attributes earnings growth mainly to buybacks and intrinsic-value accretion. Berkshire look-through earnings: ~$40 billion - He cites Berkshire as cheap relative to its earnings power. Berkshire market cap: ~$440 billion - Used to estimate valuation around 10–11x look-through earnings. ZIG launch timing: May last year - He says the ETF had not yet had enough time to prove the edge, referencing launch timing.

Pivotal Quotes: "Sorry about getting you hooked on deep value. It's just this affliction that lasts for the rest of your life and it doesn't always work so it's a painful one to kind of follow." — Tobias Carlisle: He describes the long-term psychological commitment and pain of deep value investing. "The more entertaining is the Davey Day Trader, which I'm not criticizing the guy because I think it's really engaging, really fascinating to watch. I don't want to invest like that, but I like watching it." — Tobias Carlisle: He contrasts entertainment-driven trading with disciplined investing. "I still think that at some stage, the fundamentals matter, and the market has to look at those fundamentals." — Tobias Carlisle: He explains why liquidity can delay but not eliminate fundamental re-pricing.

Implications: Listeners should expect deep value to remain uncomfortable and cyclical, but potentially powerful when paired with quality, momentum, and discipline. The episode suggests 2020-style speculation can persist, yet fundamentals and cash flow still matter over full cycles.