Toby Carlisle on Investing in Net-Nets

We interviewed Toby Carlisle, author of the widely followed Greenbackd value investing blog and founder of the newly launched Eyquem Global Value fund. The name Eyquem derives from Michel Eyquem de Montaigne (1533-1592), “one of the most influential writers of the French Renaissance, known for popularizing the essay as a literary genre. He became famous for his effortless ability to merge serious intellectual speculation with casual anecdotes…”

Toby is best known as the author of the well-regarded website Greenbackd and co-author of Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors. He has extensive experience in activist investment, company valuation, public company corporate governance, and mergers and acquisitions law. Prior to founding Eyquem, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer.

MOI Global: Tell us a little about your background — what drew you to deep value-style investing?

Toby Carlisle: I’m a recovering corporate advisory and securities lawyer. I’ve practiced in Australia and San Francisco, California. I became interested in value investing and the stock market generally at the end of my undergraduate studies when a friend introduced me to Warren Buffett’s Berkshire Hathaway shareholder letters. I read Roger Lowenstein’s book Buffett: The Making of an American Capitalist, reverse engineered Buffett’s investment methodology, read the 1951 edition of Security Analysis in a desultory fashion and then started investing in a similarly desultory fashion. I had predictably poor results. I say “predictably” because I wasn’t doing nearly enough work, and wasn’t nearly patient enough. Regardless, at the time I figured it was because there was something wrong with my methodology. That dissatisfaction with my results and my methodology meant that I was open to something else.

I started down the deep value road when I began working as a lawyer in 2002. One of my first big matters was a defense against two reasonably well-known greenmailers from the ‘80s. They had acquired a blocking stake in a going-private management buy-out and were trying to squeeze out an extra $1 from the bidders. Around the same time I noticed a number of investors taking positions in busted dot coms and making money raiding the cash. None of these investments were comprehensible in the context of the investment methodology discernable from Buffett’s letters, where he regularly pooh-poohs these stocks as cigar butts. I revisited Security Analysis, this time the 1934 edition, studied it properly, found the chapter on liquidations, and I’ve been doing that ever since.

I started working in a deep value and (sometimes) activist fund manager in 2008. I’ve now launched my own firm, Eyquem Fund Management. I’ve raised some modest seed capital from outside investors for the maiden fund, Eyquem Global Value. The fund’s focus is similar to Greenbackd, which is to say deep-value-with-a-catalyst, including sub-liquidation value stocks, and activist and private equity targets. It’s a pretty prosaic strategy. I’m not trying to reinvent the wheel. I’m just looking for overwhelming value and a good chance I’ll get my money back in the foreseeable future.

MOI: You have studied the historical performance of Ben Graham’s “net net” investment strategy extensively. Tell us what you’ve found.

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