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In Episode 77, we welcome author and asset manager, Tobias \u201cToby\u201d Carlisle.\nAfter discussing Toby\u2019s background, including his time as an M&A lawyer and what drew him to investing, we jump into his latest book, The Acquirer\u2019s Multiple.\nToby tells us that the book describes a simple way to find undervalued companies. In essence, you\u2019re trying to find a company trading below its intrinsic value. This is how to get a great price as a value investor. Of course, you get these prices because things don\u2019t look too rosy with the stock \u2013 there\u2019s usually a crisis or some hair on it, so to speak. Toby tells us \u201cIn order to find something that is genuinely undervalued\u2026there\u2019s always something that you don\u2019t like.\u201d\nThis leads into a great conversation about what Warren Buffett seeks in a company, versus what Toby, through the Acquirer\u2019s Multiple, seeks. While Buffett looks for wonderful companies trading at fair prices, Toby seeks fair companies trading at wonderful prices.\nToby goes on to tell us that for a company, there are two sources of value \u2013 the assets it owns, and the business/operations itself. You have to look at both together. Buffett looks at wonderful companies at fair prices, and is willing to pay a premium to book value, but that\u2019s generally because Buffett is able to ascertain that the stock is worth even more. Joel Greenblatt took this idea and ran with it in his book, The Little Book That Beats the Market. The idea relies on buying companies with high returns on investing capital (ROIC). But Toby thought \u201cwhat if you can buy at the bottom of a business cycle?\u201d You could likely get better returns by buying very, very cheap, hence his focus on fair companies at wonderful prices.\xa0\nThe guys then discuss the merits of a high ROIC. Toby tells us that a high ROIC is meaningless absent a moat or competitive advantage. Don\u2019t misunderstand \u2013 a high ROIC is incredibly valuable, but it has to be protected.\xa0\nFinally, we get to The Acquirer\u2019s Multiple. Toby tell us you\u2019re trying to find the real earnings of the business. The guys touch on lots of things here \u2013 why Buffett & Munger actually don\u2019t prefer this multiple\u2026 a comparison between The Acquirer\u2019s Multiple (AM) and Greenblatt\u2019s Magic Formula\u2026 and an example from Toby about the power of the AM using the stock, Gilead.\nThe guys eventually switch gears, and turn toward Toby\u2019s private \u201cspecial situations\u201d fund. In essence, Toby looks for situations when there\u2019s a corporate act, say, a board-level decision to buy or sell a company, or pay a special dividend, or buy back a material amount of stock. He then tries to arb it. He gives us any example of how he made money using the strategy back when Obama was attempted to stop corporate reverse-mergers. But in all cases, Toby is still looking for undervalued, cheap investments.\nThere\u2019s tons more in this episode: the \u201cbroken leg\u201d behavioral problem\u2026 how investors trying to improve upon the Magic Formula tend to vastly underperform the Magic Formula left alone\u2026 how professional investors tend to behave just as poorly as non-professionals\u2026 what Toby is working on/excited about right now\u2026 and of course, Toby\u2019s most memorable trade. It involves a basket of net-cash biotechs. While he made over 200%, if he hadn\u2019t tinkered, he could have made 750%.\nWhat are the details? Find out in Episode 77.\nLearn more about your ad choices. Visit megaphone.fm/adchoices