TIP243: Tobias Carlisle - Creating an ETF (Business Podcast)

Episode Summary

Executive Summary: The episode centers on Tobias Carlisle’s new ETF, Acquirers Fund (ticker ZIG), and his deep-value, long/short approach built around valuation spreads, forensic accounting, and contrarian positioning. Carlisle argues that U.S. markets are extremely expensive, value is deeply out of favor, and that a long/short value portfolio can better capture mean reversion while limiting risk. The second half offers a practical reading roadmap for new value investors, emphasizing accounting first, then Buffett/Graham/Klarman-style texts and intrinsic value training.

Main Topics: Toby Carlisle’s deep-value philosophy (Priority: 5/5): Carlisle explains how his approach differs from Buffett’s: he prefers “fair businesses at wonderful prices,” using quantitative screens plus valuation work to find cheap stocks that are overlooked or cyclical. Launch of Acquirers Fund ETF (ZIG) (Priority: 5/5): He describes the new ETF structure, why he chose an ETF over a mutual fund, and how it allows him to package his strategy for individual investors with better accessibility and tax efficiency. Value spreads and market extremes (Priority: 5/5): The discussion focuses on the widening gap between overvalued growth/tech names and undervalued value stocks, which Carlisle sees as historically unusual and potentially mean-reverting. Long/short implementation and risk management (Priority: 4/5): Carlisle details why the fund is 130% long and 30% short, how short positions are sized, and why he avoids shorting high-momentum names even if they look expensive. Why financials look cheap (Priority: 4/5): Banks, insurers, and capital markets firms are highlighted as deeply undervalued after a difficult decade, and Carlisle says these sectors dominate his long portfolio. How to build a value-investing curriculum (Priority: 4/5): The hosts answer a listener question with a structured learning path for beginners: learn accounting first, then foundational value texts and Buffett teachings, then intrinsic value work.

Key Arguments: Carlisle’s framework is not “wonderful companies at fair prices” but rather “fair companies at wonderful prices,” because quantitative testing suggests deep value can outperform quality-based value in many cases. Value spreads are historically wide, with overvalued stocks becoming more extreme while undervalued stocks have been left behind for years; this creates mean-reversion potential. ETF wrappers are useful not because they are ETFs, but because passive indexing funnels capital toward large winners regardless of valuation; an actively managed ETF can do the opposite. The long/short structure is intended to improve returns and cushion downside, especially in a market where expensive stocks may fall hard. Shorting is difficult and risky, so positions are kept small and concentrated only in names with poor fundamentals and weak cash flow. Carlisle emphasizes forensic accounting because reported earnings can obscure economic reality; cash flow, debt, dilution, and insider behavior matter more than headline profitability. Financials appear especially attractive because they have lagged for a decade, were hurt in the financial crisis, and now trade at compelling valuation levels. For new investors, accounting literacy is essential before reading advanced value books, because the core valuation concepts depend on understanding the financial statements.

Data Points: ETF ticker: ZIG - Ticker for the new Acquirers Fund ETF. Management fee: 0.79% - Carlisle states the fund’s fee, noting the effective expense may be slightly higher because of short-related treatment. Long allocation: 130% - He says the portfolio is constructed with $130 long for every $100 invested. Short allocation: 30% - He says the portfolio includes $30 of short exposure for every $100 invested. Long position sizing: 4.3% - He says individual long positions are roughly 4.3% each. Short position sizing: 1% - He says individual short positions are capped at 1% of the portfolio. Universe size: S&P 1500 - He uses the largest 1,500 U.S. stocks as the primary ETF universe. Coverage: ~90% of U.S. market capitalization - Carlisle says the S&P 1500 covers about 90% of stocks by market cap. Most expensive/cheapest cohorts: 150 stocks each - He describes ranking the S&P 1500 into 10 groups, including the most expensive 150 and cheapest 150 names. Market cap comparison: Tesla $46B vs Fiat Chrysler $25B - Used to compare a short idea (Tesla) versus a long idea (Fiat Chrysler). Enterprise value comparison: Tesla $56B vs Fiat Chrysler $27B - Carlisle uses enterprise value to highlight relative valuation. Tesla operating income: -$252M - He cites Tesla’s trailing 12-month operating income as negative. Fiat Chrysler operating income: $6.5B - He contrasts Fiat Chrysler’s positive operating income with Tesla’s losses. Fiat Chrysler free cash flow: > $5B - He notes Fiat Chrysler generated substantial free cash flow. Tesla free cash flow: -$2.5B - He says Tesla has been negative free cash flow. ETF launch timeline: Before/podcast imminent launch - The discussion occurs before the ETF is live, with Carlisle describing preparations.

Pivotal Quotes: "the businesses that I'm trying to buy aren't good businesses. They tend to be, they're okay businesses, they're fair businesses, but they're available very cheaply." — Toby Carlisle: Explaining the core difference between his deep-value approach and Buffett-style quality value investing. "you should zig when the market zags" — Toby Carlisle: Describing the ticker ZIG and the contrarian philosophy behind the fund. "I think that over time, the stock market tends to make money from even at very overvalued points." — Toby Carlisle: Explaining why the fund is not fully market-neutral and remains net long.

Implications: Listeners get a clear framework for understanding extreme valuation gaps and why a disciplined long/short value strategy may outperform if mean reversion returns. The episode also underscores that successful value investing requires accounting fluency, patience, and risk control.