Tobie Carlisle fund DEEPX

Hi All,

I noticed that Tobie has started his fund that mirrors his Deep Value investing strategies. Looks like the fund kicked off end of December 2016, under ticker DEEPX. I was wondering if anyone here has looked into it or has started to take a position. In general, I am not crazy about mutal funds due to high MERs, etc, however with a guy like Tobie leading the fund, I am inclined to think the fees may be worth it?



  • I thought the fund was under ticker QVAL? I have looked into the fund and I agree after reading deep value it's hard not respect the hell out of Toby. I read his acquirer's multiple websites as well it has some good stuff on there.

    As for the fees, I didn't find anything when I looked but was also wondering the same thing.
  • The discrepancy between the findings of “Quantitative Value” and “Deep Value” irked me so I read both books twice to ensure I wasn't misunderstanding something.

    In 2012 Toby co-authored a book “Quantitative Value”, the conclusion in which was cheap + quality (in that order) = highest returns. In 2014 he authored “Deep Value” where magically quality no longer mattered and the cheapest of the cheap reaped the greatest returns.

    QVAL is the ETF by Wes Gray of Alpha Architect who was the co-author of “Quantitative Value”.

    The Acquirer’s multiple, in my opinion, is just a marketing version of the well known and rigorously tested EBIT/EV. Of course he uses operating earnings and explains it as follows on his site:
    “Operating earnings differs from EBIT because it is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–non-recurring income–ensures that this income is related only to operations. ”

    Now why would top down vs bottom up make a difference if all the line items are identical? I may not understand this, or this may just be marketing spin in an attempt to create a "differentiated" product.

  • Gotcha on the name differences... thanks for that. I was aware of As far as the question you asked, it is to ensure you are paying for the core earnings of the business. Also, the fact that operating earnings is a number that is is hard to manipulate compared to the bottom of the income statement. Also, I believe he looks at it as the most effective way to compare the prices across multiple sectors.

    I look it as the operating income is the meat of the company where as EBIT has more discrepancy in the figure.
  • edited February 2017
    Hi kavanaught6,
    Would you please demonstrate how EBIT <> Operating Earnings? To me they are the same number. Whether you do your additions/subtractions starting from the bottom or the top of the income statement should not matter; you'll end up with the same number. Hence, my view is it is marketing spin in an attempt to generate the perception of differentiation when it is nothing more than the inversion of the well known EBIT/EV metric.
  • I could be wrong here... but I believe operating earnings is different in it excludes non recurring expenses. So the numbers are fairly similar. However, if their is a non recurring revenue or expense it wont be factored into operating earning where it would be in the EBIT.

    Again... I might be wrong. I don't see Toby and Wes as using that to develop a marketing spin though.
  • edited February 2017
    Thanks kavanaught6,
    EBIT and Operating earnings are sometimes synonymous - its just a matter of the conscious decision to include or exclude non recurring items. I don't believe EBIT is a GAAP metric hence there may not be a consistently applied. The following link has some information about it and maybe helpful:

    However, I'd guess it is easy to find a source that says something different! Doesn't make learning too easy! :-s

    Agree that QVAL has no marketing spin. Wes is as transparent as I have seen a fund manager be. My confusion over Operating Earnings and EBIT aside my ultimate concern is over the claim from Deep Value/Toby/Acquirer's Multiple that the "cheapest of the cheap" (without any regard to quality) produces the greatest returns - this is empirically false.... and it was proven in his earlier excellent work with with Wes Gray, Quantitative Value....

    Think about this... two companies with identical EBIT/EV ratios.... one has a F-Score of 9 one has an F-score of 0, does it makes any sense whatsoever that they would have an equal probability of providing the same return? I think this counterintutive thing can be taken too far, and ignoring quality is that step too far..... and the evidence says so...

    Thanks for the great discussion! :-)
  • and guess what.... "I'd guess it is easy to find a source that says something different!"

    Looks like another page on investopedia makes a different distinction! This one is a good read and should help...

    "There are differences between a company's operating income and its earnings before interest and tax, or EBIT, but those differences are often conflated even by major financial publications" (including their own apparently)
  • 1. You're correct EBIT is definitely not a GAAP rule.

    2. I could see where you're coming from on your argument. I believe Toby's argument is not that if you have an equal enterprise multiple, which company would do better. I believe it is that when you remove the quality metric from the screener it picks more beaten up companies. Which I believe in Deep Value he demonstrates it multiple times that the bigger the discount the better the return. I am not saying your wrong I am not a statistician, but I believe the data was backing up the fact that the worst companies had better in roi. which is mainly attributed to the fact they've been beaten up in the market and have room to revert to the mean.
  • Just saw the second part of your post.. good find. Thanks for that.
  • edited February 2017
    Thanks kavanaught6 :smile:

    You're welcome - glad we are working this thing out :smile:

    1. It looks like I am wrong to doubt the use of operating earning vs EBIT; Toby's definition is the correct one - shame others don't join him in that consistent application/description.
    2. What you say makes sense. One then needs to consider the order of operation. The screener finds the cheapest then highest quality among the cheap stocks. Unlike say The Magic formula which looked at price and quality in parallel.
    From memory they ran a test in Quantitative Value and by splitting the firms into deciles using EBIT/EV. Taking the cheapest decile they split it by quality and the cheapest firms with the highest quality produced higher returns than the cheapest low quality firms. So the empirical evidence still supports that cheap + quality (in that order) produces returns greater than the cheapest.
    Thanks again for great discussion!
  • Gotcha, Ive only read deep value. So, if what you're saying is true, Why would Toby abandon the quality metric? Or does he see the 'fair companies at great prices' as built into the acquirers multiple. So the company typically has to be earning a nice return from its core business in order to qualify for the screen.

    Am I missing something here?

    Thanks for the discussion as well, its a great way to learn.
  • "Am I missing something here?"

    In my opinion, no, you're now questioning what it is that you read rather than accepting it....

    If an 5 year old kid came up to you and said markets were efficient would you believe him or her? Markets are nothing more than a collection of people, people are not rational, nor are the consistently utility maximizing (else charitable donations would not exist); ipso facto markets cannot be efficient if the sum of the parts that comprise them are not efficient. If, however, you are an academic you get a Nobel prize for banging that drum for enough decades.... my point is the intelligence and authority influences our beliefs...

    It helps to gain an awareness of the possible influence the intelligence or authority someone's words maybe having... the influence of "authority" is something discussed in "Influence: The Psychology of Persuasion" by Robert B. Cialdini and something that may be transpiring... something to reflect on perhaps...
  • Does anyone know what happened to DEEPX? I can no longer find the mutual fund listed on the USA mutuals website. I also can't find the ticker on any finance site. Did this fund close all ready?
  • Love the discussion here. Like kavanaught6, I've only read Deep Value but am very interested to get my hands on Quantitative Value. Is it something you'd highly recommend gman?
  • Hi Harje,

    Yes, I could not recommend that book enough. I read 45 finance/investing/psychology/other books last year and Quantitative Value was one of the standouts.

    Kind regards,
  • Djs344,

    The fund no longer exists. It closed on March 14, 2017 and liquidated effective March 30, 2017.
  • edited June 2017

    I second @gman recommendation of Quantitative Value by Wesley Gray and Tobias Carlisle. I think you will find the book very insightful. I also enjoyed DIY Financial Advisor and Quantitative Momentum by Wesley Gray and Jack Vogel. They throw a lot of statistics at you but they are all worth reading. I believe you can buy all three of the books via Alpha Architect. If you go to directly to Amazon and click new, you will see Alpha Architect as one of the Sellers. Anyway, the hardback edition is much cheaper than the Kindle version.

  • Just a quick thought about DEEPX... It's a shame the fund did not work out. But, it shows you how disconnected the market currently is with value. Hopefully, he'll get another chance to launch something similar in the future.

    I wonder if Tobias would of had better success running it as an ETF, but I have also noticed many of the "Value" based ETF's are fairly illiquid. Some of the bid/ask spreads are very wide. Some trade very low to no volume on a given day or days. But maybe a shift from growth and FANG stocks to value could change the tide. Keep in mind that many ETF's value or otherwise also debuted after the financial crisis, so they have yet to be tested in a severe correction and/or bear market.
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