The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market

by Tobias E. Carlisle

Here are three rules covering the margin of safety: The greater the company’s discount to its value, the bigger the margin of safety. The bigger the margin of safety, the better the return and the lower the risk. A wide discount allows for the ordinary errors in calculations of value, and it allows for any drop in value. This breaks the received wisdom of the market. And financial academics ignore it. Both think higher returns mean more risk. Find a margin of safety in a company’s balance sheet. Many, many stocks have sunk due to too much debt. We need to make sure the stocks have more cash than debt or that the debt is small relative to the business. The Acquirer’s Multiple favors exactly these stocks. Find a margin of safety in a company’s business. The company should own a real business, which should have historically strong operating earnings