In this episode of the Planet MicroCap podcast, I spoke with Tobias Carlisle, a seasoned investor and co-host of Value After Hours …
Transcript
Welcome to the Planet Micro Cap podcast, the number one destination for everything micro cap investing. I'm your host, Robert Craft, and each week I sit down with elite investors, CEOs, and market experts to uncover actionable insights and real world lessons you can apply immediately. Are you a new or experienced micro cap investor? Do you want to meet MicroAP management teams as well as other micro cap investors from around the world? Planet Microap hosts the highest quality in-person micro cap events in North America. The mission is to bring the best micro cap investors, companies, and allocators together to gather, connect, and grow. Visit planetmicrocap.com to learn more about our Las Vegas and Toronto events. Now, a quick disclaimer. The purpose of this conversation is forformational and educational purposes only and should not be construed as a recommendation to purchase or sell any security. Plan of Microcap Holdings LLC and Microap Club LLC are not registered investment advisors. Planet Microcap Holdings LLC, Micro Cap Club LLC, its partners, contractors, members, subscribers, guests, and affiliates may or may not hold positions in one or more of the securities mentioned on this program and may trade in such securities at any time. Do your own due diligence and seek counsel from a registered investment adviser before trading in any security. My guest on the show today is Tobias Carlau, value investor, author, co-host of the Value After Hours podcast with Jake Taylor and portfolio manager, widely known for his work on deep value investing and the creator of the Acquirers Multiple Framework. In this episode, Tobias joins me to break down what value investing looked like in 2025 and why he believes 2026 is shaping up to be a potential harvest year for patient value investors. We discuss how a decade long concentration in a handful of narrative-driven meggaap stocks has starved capital from small and micro cap value, creating the exact conditions that historically lead to powerful mean reversion. Tobias walks us through his disciplined financial statement driven approach to investing, why ignoring narratives is a feature rather than a bug, and how balance sheet strength, asset heavy businesses, and capital starve sectors are setting up some of the most compelling opportunities today. We also dive into where he's seeing the greatest mispricings, including US small cap value, global small caps, and international markets like Japan and why discomfort is often the clearest signal of opportunity in value investing. We mentioned a number of companies and sectors during this conversation and I'm not a shareholder in any of them. Thank you again for tuning in to the Planet Micro Cap podcast and please enjoy my conversation with Tobias Carile. Tobias, thank you for being here, man. how you doing? Hey, thanks for having me, Bobby. It's good to be here. The other the thing I the thing we we should mention, I have two ETFs. Zigg, which is uh midcap, large cap, but currently small um deep value US equities, and deep, which is a uh small and micro. And if you look on the Morning Star box, it's like right off the bottom edge of small value. It's like outside. It's It's fallen off the It's almost fallen off the screen. It's so small. My good. You know, it's funny. Every time like in the intro, you know, I always record the intro before, too. So, I'll make sure to include I always don't know. I always forget like I remember back in the day when we did our first interview or maybe our second one when everything launched. I didn't know if I could say it or not. I don't know. So, I I was always, you know, I'm always careful to not say it and then, you know, I'll let you say. I don't know. >> Yeah, that's good. That's fine. >> Okay. >> I can say it. >> Well, you know, look, it's been a minute since we had you on the pod. Um, and you know, look, we're recording this on uh what's it? Thursday? Yeah, Thursday, January 15, 2026. You know, usually I always do kind of like a year in review kind of looking ahead kind of thing. But I thought what would be fun with you to do is kind of do one of those, but kind of going through like a couple little gimmicks, you know, one being what was the 2025 value investing playbook? basically based on all your interviews, everything you've experienced that you saw in 2025, you know, what worked, what didn't, and then kind of go through like a 2026 value investing themes that maybe we can either call BS on that is not that important or like we should actually really look into and why. So, you ready to do our our playbook slashBS meter? >> I'm ready. Let's do it. >> Sweet. All right. So, first things up, we'll do this uh 2025 value investing playbook. So the first point that um you know I put together and uh thank you uh AI we love you um is you know it seemed like one of the main themes and part of this playbook was uh an anchor on valuation and how but using the right metric for the cycle. Let's dig a little deeper. You know is this was in your opinion a main theme of 2025 and why? Yeah, I'm not so sure. I don't know about uh I wouldn't necessarily change my metric for the cycle, but I think that you know I've I've written a book called the acquirers multiple which is which is arguing for this acquirers multiple which is the uh I did which is operating >> strategic >> operating income operating earnings comparing that to enterprise value. I think that's fairly bread and butter for a lot of investors to do that. Um, so there's really nothing like it's not proprietary or anything like that. I just use it as a as a to to describe what I'm trying to do, which is to find cheap businesses. Um, oh, that's the metric to find cheap business to to find cheapness anyway because the enterprise value captures debt and uh offbalance sheet liabilities and um preferred stock, minority interest, all those sort of things. So that's a better view of what you're paying rather than market capitalization which can be misleading when there's a lot of debt. And then operating income, which if you're looking at the bottom line earnings, it can be impacted by the capital structure. Interest payments and tax are all affected by the the capital structure. So looking at operating income, so you can get an applesto apples comparison of different industrial type businesses. And then that's what I'm trying to buy. Industrial businesses. That's so that's that's the price that you're paying and then you have to consider the underlying quality of the business. The you know are the earnings recurring? Are they likely to grow in the future? Are they declining? Do they convert into cash flow? Those sort of questions. So that's that's the approach that I that I like. Um in a market like this which has been a large growth market where a lot of it's driven by narrative and a lot of it's driven by um things that might happen in the future that you have to sort of see in the uh you got to read it in the tea leaves a little bit not so much in the financial statements. I do less well in an environment like that. Um but that's the the idea is that it's basically financial statement driven investing rather than narrative and trying to predict the future. Good. Yep. So uh I mean one other aspect to this is you know basically just you're avoid you're avoiding the things to really avoid or or if you if you really you know were focused on value investor background in 2020 is just avoiding anchoring on peak or trough earnings and kind of that blind reliance on forward during some of these regime shifts. >> Right. So we're looking at fi historical financial results. Um we look at Q's and K's and uh look at about 5 years of trailing uh statements to come up with what we think the business can do through a cycle and then we're often we're buying things that are closer to the bottom of the cycle. So for example, right now we have a large concentration in energy and uh folks who might have followed that cycle would know that oil topped out in 22 and oil has fallen pretty steadily since 22 to now it's sub $60 uh which has historically been regarded as supply destruction which is there aren't very many US-based oil companies that are profitable at $60. There aren't very many um new fields that are profitable at $60. So that's a good environment if you're a supplier of equity capital because um equity capital is expensive in that in that area because the prices are cheap like that would be the corollar rate of the price the prices are low oil prices are low and then among the energy companies we can find some that are still profitable still free cash flowing um some of them are buying back stock and so that's the kind of position that that I like to put on where probably close to the bottom of the cycle or clo certainly nearer to the bottom than to the top and still earning reasonably well with some hope that some geopolitical event will come along and that will cause oil to rally. So we look at, you know, gold's had a very good run, but if you some people will say you look at the oil the the oil price in US dollars and $60 used to be like a pretty good oil price, but there's been so much money printed since 2020 even. I think it's like 40% of oil of all US dollars that are outstanding have been created since 2020. And that has an impact on consumer prices and it has an impact on the oil price. So where $60 used to be a pretty good price, $60 is now the old $60 is really $90. So one way of comparing it, you know, on an applesto apples basis, it's another it's another uh commodity that moves around, but gold has long been considered sort of like a a monetary metal. And at the moment, you can buy 1 ounce of gold buys 100 barrels of oil, which is a very which is very very cheap for oil. oil and you could say, well, gold's had a pretty good run, so that's part of the reason why oil's so cheap. But if you look back historically at these points in time where the oil price has been as cheap as this relative to gold, it's often been at the beginning of very good runs for oil. So I think that >> energy is cheap um on in a on a gold basis. I think it's cheap in a US dollar basis as well. And I think you can buy oil equities very cheaply against a low oil price. And so, you know, there's a a revolution or something happening in Iran and that sort of caused the oil price to run up. Um there's we've taken Maduro out of Venezuela and Venezuela is an oil producing nation as well or or was historically and hasn't been more recently. And so that's also impacted the oil price, but that's the the focus in the the largest holding in the fund. So I have a risk limit of uh no more than 20% uh in any industry. And so that's we're up to our risk limits in energy at the moment. And so um that's a that's an example of the kind of stuff that the fund will do. >> Very good, man. We're we're going to be here for three hours. We're with uh I got to we got I got to hit my point. All right. Here we go. All right. So this kind of actually what you're talking about it kind of dovetales into the next kind of what I guess you'd argue potentially could have worked in 2025 and that's being able to separate cyclical pain from structural decline. So I mean what must go right for this business to recover identifying whether demand destruction is cyclical or it's structural you know so how do you how did you think about that when you when you look back on 2025? >> Yeah that's a really tough question. It's something like trying to figure out what something what's a value trap and what's not a value trap. >> Exactly. I I think it's hard to know in the moment. You really don't know until after the fact because there are lots of businesses that look like they're in secular decline that you can make a lot of money in a business that's in secular decline provided you pay a low enough price for it and then they're in runoff and so they generate a lot of free cash flow. They generate a lot of cash cuz they're not reinvesting as much. But then you have other businesses that they're swinging for the fences. They're trying to get themselves out of the hole and you don't want to be in something like that. So I I've I I've really never come up with a good answer to that question. I've been in things that were secular decliners and lost money. And I've been in secular decliners that lo that made money. And I've been in companies that look like they're in secular decline and turned around. And that's the ideal scenario because everybody in the market is offside when that happens. But I've certainly had my fair share of, you know, secular decliners that continued going down and didn't make money. also hard to really tell in those cases because sometimes, you know, you'll have, you know, everybody will just completely hate that industry, but there will be those one or two companies where it's just a great management team and they know how to manage, you know, the the ups and downs or the cyclicality of, you know, how people perceive that business. You know, it it's it's it's very difficult to say like, okay, this is so obviously a dead industry right now that we're talking about here when, you know, more often than not, it's usually not a dead industry. There will always be a couple survivors. It's true and it's very hard to predict what happens in the future as everybody knows, but one of the ways that you can combat that is by paying a low price. And so if you don't know what's going to happen and you're paying a high price, your return, you know, your return distribution is going to shift down. If you don't know what's going to happen and you pay a lower price, you shift your return distribution up. And so I think that paying a low price with high uncertainty often that is a pretty good combination. And you're going to get it's inevitable that you'll pick up uh these value traps in that process. But if you have enough winners out of that, then as a cohort, which is the way that I invest sort of portfolio at a portfolio level, they tend to do better uh because you're accepting that uncertainty when a lot of investors don't like it. that actually dovetales into you know the next uh theme of 2025 and the idea that narratives have followed price and not the other way around you know these story stories don't drive returns the price changes uh create the stories so how did you how do you think about that well that's one of my that's one of the things that I say a lot because you people something will be hated and then the price will start doing okay and then a lot of people will come out of the woodwork and and tell you how much they they like that and it's really it's just and and vice versa. It can be not a great business, but for whatever reason having a pretty good run in the stock price and so people will invent a narrative to and I'm one of them. It's impossible not to. It's just that what humans do. We look at patterns and we pull stories out of the patterns. But I think that um it's good to know that because then you can sort of ignore the narrative a little bit and focus more on the that's what I like to do just focus on the financial statements and try and figure out what's happening on a quantitative basis rather than sort of fixing a narrative and trying to predict what's going to happen out in the future if everything goes right. >> What do you mean you don't like being sold by a management team and hearing? >> I do. I love it. That's why I don't do it. I'm I'm I'm I'm I'm persuaded by people who are persuasive, you know, by charismatic CEOs. >> The same boat. I can't help myself. I I got to say it's such a beautiful gift, you know, to be able to do that. You just kind of hope that they're running a good business at the end of the day. U that's that's really the the hope, you know. Um again, you know, all these themes are very much interrelated, but I think this next one I I feel like you might have tattooed somewhere. Um, I'm pretty sure you do, but the idea of buying with a margin of safety and then hold for business quality. Yeah. Okay. It's so easy to say it was a 2025 theme. This is probably a theme we could attribute to every single year when you're evaluating potential uh idea. So, you know, it was 2025 any not that it was necessarily any different, but was there anything specific to 2025 that this theme kind of plays into? >> I think it's true. I think it's the question you're always confronted with when you're thinking about buying something is on a quantitative basis the valuation should be much higher than it is and the price is lower than it should be and the one of two things is going on there. Either the market's wrong about it in which case the price should catch up to the value or the market's right about it in which case the reported earnings are going to decline to catch down to the price. I get a mix of them in the portfolio. The hope is that the you get more of the catchups and you know it's like a magnitude and frequency type question where you hope that the winners win so much cuz I think that I'm I'm about 50/50 on the batting average but uh if you're a little bit higher if you get a little bit more performance out of the winners then you can shift that distribution up again. So I think it's a I think it's a really good point. What I think it's it's hard to implement in practice because that margin of safety is often a little bit of an illusion uh for many companies because they are in in sort of secular decline as we discussed before. >> Can you can we go a little bit more down that rabbit hole? That was that was I can't let that nugget go of the illusion of the margin of safety when there's secular decline. Can you can you expand on on that a little bit? >> Well, I think I don't think that people I don't think that many people I don't think the market is wrong when it's looking at a lot of businesses. I think that most people have a pretty good assessment of the valuation and and you can you you're getting this big discount. So you can see you can look at the numbers quantitatively over 5 years and come up with an intrinsic value. It's a forward-looking number that if the business continues performing as it has in the financial statements and then we just roll these financial statements forward for another 5 years, what does the intrinsic value of that business look like? And if the price is wildly dislocated from that, which is what I'm looking for, these wild dislocations, you get these things where there's there's clearly some dispute in the market about what's going to happen to these businesses. The business is very discounted because the expectation of the market is that whatever bad thing has been happening continues to happen. In like half of the instances, in my experience, about half of the instances, what the market thinks is right is right. And about half the market's wrong. And so you need to win more when you're right and lose less when you're wrong. And one of the nice things about paying a lower price is that you're already getting that discounted price. So if the market's right and it's a secular decliner, then you shouldn't lose much because the market's already made that assessment. But if the market's wrong, then that and the for whatever reason, the business inflects. And so there's a lot there's a one of the I have a lot of consumer discretionary uh in the portfolio. more recently, this is not always what the portfolio looks like, but currently there's energy and there's consumer discretionary as a secondary in that consumer discretionary has I think that there was a lot of stimulus out of 2021 and a lot of that wound up in the consumer discretionary businesses, retail and uh footwear and whatever else you whatever else fits in that category. And then you look at 5 years of trailing financial statements and they look like they're pretty strong. You know, this this happened through 2020, 2021, 2022. A lot of, you know, lumber had a run up. Every sort of uh little uh data series of a commodity or any kind of price had this runup and then it fell back and it made it quite hard to normalize all of these businesses. But I think that that consumer strength in 21 and 22 tended to consumer weakness. And I think the consumer's been quite weak since 22. And that's reflected in a falling oil price in a lot of other places as well. So the question is when you see these companies that are discounted, are they discounted from over earning in 21? And so they look like they've had three or four years of secular decline since 21, but they're really just going back to trend. they're going back to roughly where they were and then they fall through trend because the the sentiment is so bad in in a lot of these names and even though the business starts doing a little bit better the market is still looking at that 2022 print and saying well it's a long way off the 22 or December 2021 print being that like the peak the S&P 500 earnings per share peaked in December 21 not a lot of folks know that we're still sort of trading below where it was where it was then and And that's also becomes more pronounced as you move down from midcap to small cap to to small and micro. And the small and micro, they're really volatile and they're very sensitive to the economic uh whatever's going on in the economy. And so I think that it's been quite hard to figure out the true earning power. And so even buying at a big discount, I've found that a lot of these companies have continued to be weak. But I I look at things like um the coincident economic indicators and the forward economic indicators and it looks to me like we've inflicted without having any recession ever being declared at any point through there. We've sort of gone through a recession since 22 that now it looks to me like it's being it's getting close to bottoming for the consumer at least. And so I think that those sort of businesses that benefit from a little bit of consumer strength, which which could also be energy, to me that looks like they're they're prime for a pretty good run. And all of the multiples are pretty cheap in that in those areas. Yep. I you man, you the way you cover this stuff is like what that you've said it so perfectly. I mean it actually again leads into this next point about the leaning into mean reversion especially where capital has fled you know where kind of seeing where institutional ownership has been falling and it seems like their focus here has been more on small caps international markets and unfashionable sectors so want to comment on that >> yeah I mean I I hear from inst institutional allocator friends of mine that one things that's been going on is that private equity has been having difficulty sewing It's so the funds have been having difficulty selling their holdings and so they've created these continuation vehicles and so they raise money for a continuation vehicle and then the allocators and the institutions have to think about where they're going to pull that capital from to meet these calls for private equity continuation vehicles and so on and they haven't got their distributions. So they're raising new funds, they've got continuation funds, they haven't received their distributions. You got to pull that capital from somewhere. when they look around at the parts that haven't been working, it's small cap value, particularly globally, but also domestically in the US. And so all of that allocation gets pulled. And to me, that's what creates the Ford returns. And now we've seen that international international small value has taken off, but that was particularly bombed out. I think domestic US small value has yet to take off. Um, and I but I think it's getting I think it's getting close. is I think you're seeing it in the Russell 2000 a little bit which is a junkier index than say something like the S&P 600 which has got a profitability filter. Um that that transition seems to be happening now and I think a lot of it is because they've been starved of capital that investors in that area have been starved of capital. I think some of these businesses have been starved of capital and that's the kind of thing that creates these conditions for good returns. And if you're a capital provider, which is what an investor is, a fund is, you want to be providing capital to places that are starved of capital because you get good uh you get good prices, you get good forward returns. So I'm I'm a believer in mean reversion. I think that's the mechanics of mean reversion. I think that's how it works. And I also believe in trying to find these places that have been starved of capital and and putting capital into them. So I I'm I'm fairly hopeful for small value at this point for domestic US small value. Me too. Um, for >> talking my book. Talking my book >> for for no reason. >> Micro. Yeah. Um, so I mean this also this plays into this especially if we're talking small and micro as well is using balance sheets as a downside protection. You know that I we we can cover that a little bit. You kind of already kind of mentioned it. Is there anything more that we want to kind of cover there? Because again it's these are this is kind of a theme that is very much uh uh every year you want to you know kind of use balance sheet as downside protection in some respect. Um but is there anything specific to 2025 that stands out on this point as well? >> Not so much. Just that we've had a little bit of a normalization in interest rates. So where previously it didn't really matter. You could run with a lot of debt. That's certainly something that's impacted small and micro over the last few years of interest rates have gone up because they're right that they feel that their debts not termed out as well. They tend to pay higher prices. So they almost immediately eat the higher rates. Whereas midcaps and large caps, they term out their debt a little bit better. It takes them a little bit more time to feel the impact of higher rates. And so that almost immediately hit the earnings of small and micro plus you get some multiple compression because if you can get a 5% yield out of the 10-year Treasury, you need I I think you need more than 5% to be holding some of these businesses. Well, you want to be close to 5%. And then the balance sheet is just how long can they keep on going before they see a turn in the business. And the better balance sheets can last longer. And really this is a survival and endurance business. And so that I think that the rates going up has really started to bite in 25 and now we're seeing rates coming down a little bit. So maybe that works in small values favor relates to the next point is uh and again this is superfluous for any time but I think I between your pod and my pod this has been probably the number one thing I feel like I've talked about now and that's one just the general going where others won't. I mean, I think we've talked about that for 11 years on the pod since we started it, but specifically for this year is global and small cap for probably for yours specifically more small cap value. We always talk about how there's always opportunities in small micro cap, but especially on the global side. I can't tell you how many episodes we've done this year talking about global not just small but also micro caps and you know going Italy and Greece and Sweden all these different places and how I mean is the is it really that the most mispriced assets are often outside the US uh mega caps right now that you know really looking at Japan, Europe, Hong Kong and all these underfall local markets and at what point do we feel like it might you know that might turn. Also, I'm I'm kind of curious because we it's really been covered a lot at at least in our neck of the woods. >> Why I I think that you can see if you look back over the last hundred years, it's very clear like using domestic US data, it's very clear that being small is better than the small caps have outperformed and it tends to be because they've grown earnings faster. That's true over 100 years and the average over 100 years is something like 7% a year for being in small versus being in large. However, you get these around do around sort of bubble.com tech boom type things. You get a runup in in large for whatever reason. I don't know why it goes to large, but you know, you can think of the.com boom as one, the nifty50 is another. And I think we're living through one now where really it's mag seven which are just the biggest seven companies in the market are doing very very well and everything else is sort of the other 483 in the S&P 500 haven't been doing that well either. I think as you get further away from wherever the bubble is, the performance has been worse. And at the same time as there's this little bubble in AI or Mag 7 or the top tech stocks or whatever you want to call it, there's also been this weakness in the economy that has sort of the cyclicals and the other more normal businesses have suffered from and and certainly global is part of that as well. The only game in town has sort of been Mag 7. But I think that that kind of broke down a little bit the fourth quarter last year, maybe from October onwards. And I think that we're going back. We're normalizing a little bit now. There have been a few head fake normalizations in 24 and 25. So I don't you have to be a bolder man than me to kind of call it but I do feel like this is what it will look like where we're sort of returning to things that a little bit more off the beaten path doing better and the everything being concentrated in a handful of stocks which is a very unusual sort of situation that's sort of moving we're moving on from that a little bit I hope to to say the least we're going to have 150 names in Vegas like they better start they better start moving off the mega But uh just seven names but um you know the the main thing always every year also is we want to study our mistakes and you know just when you're looking internally but also looking at history's mistake. What would you say was maybe the mo the the core mistake or most or mistake that was most often made in 2025 either that you personally did or that you recognized amongst other investors? Well, my my funds are set up this the investment strategy that I have is based on it's back testing looking at 100 years of data and looking at trying trying to capture the very long-term themes in a 100 years of data. But I know that there are going to be these cyclical periods where it runs against and it's been a very strange thing and I talk about this on the podcast a little bit that the things that worked over a hundred years haven't worked over the last 10. And you might say, well, that's because everybody knows these things now and that values value is so well known. Like, who who doesn't want to pay a cheap price for for earnings? And I say, well, the thing that's been working is market capitalization, which is an even simpler calculation than figuring out the fundamentals of some of these businesses. So, I I it's a little bit ahistorical what has happened over the last 10 years. And it sort of it crescendoed a little bit last year although I do think it broke down at the very end. So I mistakes uh for me I I have this very systematic approach to investment and so a mistake for me would be not implementing my my strategy and so I did stick to the strategy last year but the strategy didn't do very well and particularly when you compare it to what the market did what the what the mag 7 did. So I think that to the extent that that's a mistake, uh I think the mistake is chasing Mag 7 and I think that it takes a little while for those mistakes to be revealed by the market. So I I'm going to be completely contrarian and say that the mistake last year was holding Mag 7 and the correct thing to do was be small value even though it didn't work. >> Well, you know, we're all long-term focused here, right? We won't hold you just to one year performance. Uh, you know, it's all good. You know, look, there's another year, which is what we're about to talk about now. You know, and that's, uh, the second part of the the interview that I wanted to chat with you today on was, you know, kind of the value investing themes for 2026. And kind of you tell me if this is something that you're putting a lot, you know, you're putting a lot of weight on or you're kind of like, you know, cool, sure, of course. You know, we think about that every year. you know that I guess that's a spectrum of like more you know putting a lot of weight on this to yeah I think about this every year that okay that's that's our spectrum so we were just talking about this the first idea here is being a mean reversion is no longer theoretical so after years of value dispersion 2026 increasingly looks like kind of a harvest year for patient value investors are you putting a lot of weight on that or cool yeah sure of course I love that well it does seem that main reversion hasn't worked in the market for an extended period of time. So, it would be a return to mean reversion beginning to work again. I think that mean reversion is something that works over a hundred years hasn't really worked over 10. So, I'm going to say yes. It's my hope that 2026 is a mean reversion year. All right. Number two, small micro caps as the primary hunting ground. You only allowed to say yes 100%. Every egg in that basket, of course, Bob, what are you nuts? I think I think you I still think you need to pick your places a little bit because it's true that the small and micro has underperformed, but it's also true that small and micro is still pretty expensive relative. So, if you look at the Russell 2000 or the S&P 600, which are both small cap indexes, I know they're probably bigger than a lot of your listeners and I invest in in in my smallest fund, but they're a good example where if you look at the top 50 names in the S&P 600, they're trading on a and that's the profitability. They are better businesses than the Russell 2000. they are trading at 40 times earnings and the smallest 50 in the S&P 600 are trading at 16 times earnings which is close to their long run average but by no means a big discount to the long run average whereas my portfolios my small portfolio has got a PE of 9 my bigger portfolio has got a PE of 10 so I think that you can find cheaper stocks out there but they're really under represented in the big indexes and I wouldn't be surprised if uh even the small and micro indexes which aren't great have a don't have a great in 26. >> I mean, look at the end of the day, no matter what year it is, we're always, at least in micro cap land, we're always watching for micro caps with real cash flow, but no sellside coverage. What a prime hunting ground that always is. Founder led or insider owned businesses, spin-offs, orphaned assets, post distress survivors, you know, that's always what we're looking for. I right like that's Yeah, I don't think there that's >> it is good. But again, like on that theme that I've been talking about, you know, Joel Greenblat wrote that great yellow book where he said one of the places that you can go and look in a spin-off and then there's often a good co bad co in the spin and the spin gets all of the debt and the shitty business and the good co gets a better balance sheet and gets the hold on the good business. and Greenblat pointed out that it's often the the spin code which is the shitty code with the balance sheet and the bad business that does better which doesn't make any sort of intuitive sense however that's not been true the spins because now everybody I think is aware of that and so folks have been buying the spins and selling the hold co um so that might have turned around maybe we'll go back to normalization and that but I think that that's an interesting it's always a good place to look you want to look at catalysts so the next theme is and it literally just did a pod with uh Robert Gardner from Grand Peak talking about this uh uh where he basically you know international value is greater than US value and if that theme will continue to persist you know the idea that I mean I think that what did I name the pod is uh he he said that international market micro caps right now resemble you know uh micro cap landscape in the US in the 1990s you know some of the key regions Japan, Europe, selective uh you know emerging markets. So I mean do you what do you think? Do you think this theme will continue? >> Yeah, I went to Tokyo last year. I spent a week in Tokyo, visited some businesses and some local investors and I'm you know I wanted to move. It felt like America in the 80s pre-LBO boom and I think that there's some wild things going to happen in Japan and they've got the stock exchange is trying to introduce all of these measures that there's a lot of effort to sort of have these businesses sell their cross shareholdings which has been the big issue and you know take some of the cash they've got on their balance sheet and give it to shareholders or do something with it. But uh as excited as I was when I went into the meetings with the managers, then I understood why uh the situation is the way that it is because they they're sort of they're very uh conservative. They're very concerned about doing any of the things that American type business managers would do. So I think it's going to be a long process there. But there are big funds at the top end of the market in Japan and they're paying prices that that are expensive globally. If you're in the small and micro in Japan and there's some very cheap stuff there, but you've also got the problem that the management teams and they're like because of the cross shareholdings, they still can't be shifted. So, it's going to take a long time for that to work out. But I do think that Japan as one place is very very cheap. And I'm sure that I think there's a lot of global small value will work for a long time. I'm I'm hopeful that US domestic small value does as well. >> Again, we need to get past just the magazine. >> Need to get a t-shirt. Put it on a t-shirt. >> Yeah. Right. I don't know what what that shirt would look like. >> Small cap value. >> Put it in the chat. GPT. Like, how do we put make me a >> Send small cap value. send it um for 2026. Um we talked about this, but do you think this will continue to persist 2026? Balance sheets matter again. Yeah, I do. I think we we've as rates have run up, rates have come back down. I don't know where rates will be through 2026. I still think we're low on a on a very long run basis, but I think that it's the change in the rates that seems to impact businesses more than the absolute level of rates. And so when rates went up like that blew up Silicon Valley Bank and it certainly impacted all the smaller micro coming back down they do seem to be a little bit perkier this year but I have no idea where rates will be at the end of the year. I I my I think everybody wants them lower. I feel like that everybody wants lower rates but who who really knows? It could be if we see some an inflation shock rates will go back up. It's impossible to predict but it's always important. Yes. Absolutely. All right, we're gonna do rapid fire because I've also I'm feel like I've already taken too much of your time, but here um asset heavy businesses are back. >> Yeah, I think so. >> Yeah. Why Why do you I'm Okay, I said rapify. I don't care. I'm going to Now I'm going to ask why. >> Well, I'd say oil and gas as one. I think there are a lot of industries that have suffered a little bit. We've been it's been a tech compounder asset light market for a long time and they've really they they in the last quarter of last year a lot of those businesses really got they saw those multiples compress a lot but they still look expensive to me so it's going to be interesting. I think it'll keep them going. >> How about banks and financials? Still a stockmakers uh will it be a stock pickers market? >> I think that they're cheap uh as a as a cohort but again it's a you have to be a little bit careful because it depends on their exposure. It depends on, you know, their what their asset liability mix is. I think that you can make a lot of money there, but you you need to know what you're doing. I think this next one, let's dive into this a little bit because I'm I'd be curious to see um how this will play out in 2026 because especially in micro cap, we're always this I don't know if it necessarily will ever be a fatigue. there will always be a new narrative. But the idea of that uh narrative fatigue in concept stocks, >> yeah, I think >> I think we've seen that. I think we've started to see that. I think that if you look at the the names that were hot last year, I think that there was a lot of compression through the last quarter of last year. A lot of those names, but I but then I look at those names. I don't want to sort of name those names, but I look at those names and I we've seen a lot of compression and I think that they don't really have any many of them don't have an underlying business to provide any sort of downside support. So, it could easily continue to see that compression in that in those narrative type names. I mean, yeah, I probably I don't It's just it's one of those things where it's like I think because AI was you know when you think of certain narratives that have been hot over the last year or two like I mean they've been so hot and been talked about so much that you know it's kind of hard to think all right well what what could possibly be hotter or more talked about than you know AI or something you know for 2026 you know what I'm trying to say >> well if you look at a stock like open I will name names for open you know that was trading at like a dollar or or below a You know, I'm annoying about this. A shareholder, not a shareholder. >> No, no, no. I'm not a shareholder. I'm not a shareholder. >> Yeah. >> Open uh got a promoter and then it ran from below a dollar to to 10 bucks and then there and the promoter said it'll go to 80 or or something like that. So, a lot of folks piled in and it's gradually dribbled down from 10. I think we've seen this a few times with like AMC and those I would call that a narrative story stock where really the underlying finan financials just don't support the claims that they're making and the businesses really got to do something that it's never done before to justify the valuation and so they stampede a whole lot of retail names into these stocks that don't support the valuation and then the promoter either gets out or his warrants and options have paid off and so he doesn't care as much and then it just sort of leaks out over years and years and years and all these retail guys who got stampeded into this stuff suffer as a result and I think open is a good example of something like that. I don't know how many times these people can allow it to happen to themselves but if you you know you're in AMC you're in open these kind of names and then you watch that fall for years and years it's very demoralizing. I don't know how many times people can keep on coming back to those kind of promotions but it does seem like there's this neverending line of people prepared to do it. I don't know. I feel bad every time I look at it. >> It seems like people are getting more savvy with it if I'm being honest. You know, like they'll know that a promote's happening and that, you know, they don't care what, you know, there's some that will still be like, "Oh, what is the tell me more about the business?" But then there's folks that are just traders that are just trading around it, you know. So, like, you know, on one hand, they're you know, they probably know that it's a promote, but at the same time, they're like, "All right, cool. There's volatility. Let me just, you know, make make incremental margin on it." and you know not not investing but just kind of like you know playing the game. >> I saw that open tweet like the promotional tweet come out in real time and I thought no one is going to do this surely and then of course it ran up like more than 10 times. So I thought well there you go that's not people will do >> unfortunately you see it all too much in micro cap land. It's a mess. Um but all final one you know for 2026 value equals behavioral advantage. Um, do we still think that that is something that is to consider in 2026? I do. I think it's been a behavioral disadvantage for the last 10 years, but I do think that part of what keeps these strategies working over the long run is periods of underperformance. And so, it's had its period of underperformance. Be great to see some outperformance for a period of time, but yeah, all investing is is behavioral investing. Trying not to do what the crowd is doing, I think. And that's the hardest thing. All right. So, I mean, if I had to put one line uh for the the 2026 playbook, you tell me if this, you know, if we need to adjust it or not. But basically, buying real businesses at real discounts in places others aren't looking and hold them longer than feels comfortable. Is that beautiful? >> That's a good one. >> Chat GBT is great. I I just I'm I'm not I'm not here to say I'm some genius that wrote that. I'm definitely not going to do that. and and uh and people like, "Wow, Bobby's such a great writer now. Wow. Where did where did he come up with that? Like, you should write a book. It's >> just a tool. It's just a tool. >> It's just a tool." Um well, um listen, you you've spent a lot of time with us. This is this is actually pretty fun. We should do more of these like gimmicky things more often, but final thoughts as you're going into 2026, you know, high level when it comes to value after. I don't know. You you tell me what's uh what's on what's on your mind that you've been jamming on specifically then for 2026. >> Yeah. I think that there's been a it's it's been a mag 7 dominated market for uh it's been a tech mag7 market for an extremely extended period of time. Uh it's ahistorical and I think that buying off the beaten path undervalued stocks that's a strategy that has worked hasn't worked so well over the last few years but I think it will continue to work into the future and it looks like it's been working again since about October last year. So fingers crossed that continues for 2026. >> All right. Well, Toby, with that, where can our audience go and find more information to follow you on the socials, podcast, the funds, everything? My firm is Acquirers Funds, and it's acquirersfunds.com. I'm on Twitter at greenback grd. And uh I have a website with a free screener, acquirers multiple.com. >> Let's give the book a little shout out. You know why not? The acquires It's multip you come out with a new version of it this year. >> I I have a new book. Yeah, I have a new book called uh Soldier I have it right here in front of me. Soldier of Fortune. >> Oh, yeah. There it is. Oh, okay. Cool. >> It's not It's not quantitative. It's just a It's just a book about I I like Warren Buffett Sunsu Ancient Art of Risk Taking. I just put some ideas together. Had to be fun. >> Did you also chat PT it and say, "Hey, can you help me write a book that combines?" >> I wrote it before Chat GPT sort of >> made it took over. >> I I got it out before Chetch PT took over. Yeah, >> that's awesome. I love that title, Soldier of Fortune. Oh, that's so appropriate. Well, uh, Toby, always a pleasure, man. Hopefully, we'll see you in Vegas this year andor Toronto. And, um, just thank thank you for your support over yours and look forward to the next combo. >> My pleasure. Thanks, Bobby. Congrats on the sale. >> Thank you, man.
Value Investing Playbook with Tobias Carlisle
Summary
In this episode of the Planet MicroCap podcast, I spoke with Tobias Carlisle, a seasoned investor and co-host of Value After Hours …Transcript
Welcome to the Planet Micro Cap podcast, the number one destination for everything micro cap investing. I'm your host, Robert Craft, and each week I sit down with elite investors, CEOs, and market experts to uncover actionable insights and real world lessons you can apply immediately. Are you a new or experienced micro cap investor? Do you want to meet MicroAP management teams as well as other micro cap investors from around the world? Planet Microap hosts the highest quality in-person micro cap events in North America. The mission is to bring the best micro cap investors, companies, and allocators together to gather, connect, and grow. Visit planetmicrocap.com to learn more about our Las Vegas and Toronto events. Now, a quick disclaimer. The purpose of this conversation is forformational and educational purposes only and should not be construed as a recommendation to purchase or sell any security. Plan of Microcap Holdings LLC and Microap Club LLC are not registered investment advisors. Planet Microcap Holdings LLC, Micro Cap Club LLC, its partners, contractors, members, subscribers, guests, and affiliates may or may not hold positions in one or more of the securities mentioned on this program and may trade in such securities at any time. Do your own due diligence and seek counsel from a registered investment adviser before trading in any security. My guest on the show today is Tobias Carlau, value investor, author, co-host of the Value After Hours podcast with Jake Taylor and portfolio manager, widely known for his work on deep value investing and the creator of the Acquirers Multiple Framework. In this episode, Tobias joins me to break down what value investing looked like in 2025 and why he believes 2026 is shaping up to be a potential harvest year for patient value investors. We discuss how a decade long concentration in a handful of narrative-driven meggaap stocks has starved capital from small and micro cap value, creating the exact conditions that historically lead to powerful mean reversion. Tobias walks us through his disciplined financial statement driven approach to investing, why ignoring narratives is a feature rather than a bug, and how balance sheet strength, asset heavy businesses, and capital starve sectors are setting up some of the most compelling opportunities today. We also dive into where he's seeing the greatest mispricings, including US small cap value, global small caps, and international markets like Japan and why discomfort is often the clearest signal of opportunity in value investing. We mentioned a number of companies and sectors during this conversation and I'm not a shareholder in any of them. Thank you again for tuning in to the Planet Micro Cap podcast and please enjoy my conversation with Tobias Carile. Tobias, thank you for being here, man. how you doing? Hey, thanks for having me, Bobby. It's good to be here. The other the thing I the thing we we should mention, I have two ETFs. Zigg, which is uh midcap, large cap, but currently small um deep value US equities, and deep, which is a uh small and micro. And if you look on the Morning Star box, it's like right off the bottom edge of small value. It's like outside. It's It's fallen off the It's almost fallen off the screen. It's so small. My good. You know, it's funny. Every time like in the intro, you know, I always record the intro before, too. So, I'll make sure to include I always don't know. I always forget like I remember back in the day when we did our first interview or maybe our second one when everything launched. I didn't know if I could say it or not. I don't know. So, I I was always, you know, I'm always careful to not say it and then, you know, I'll let you say. I don't know. >> Yeah, that's good. That's fine. >> Okay. >> I can say it. >> Well, you know, look, it's been a minute since we had you on the pod. Um, and you know, look, we're recording this on uh what's it? Thursday? Yeah, Thursday, January 15, 2026. You know, usually I always do kind of like a year in review kind of looking ahead kind of thing. But I thought what would be fun with you to do is kind of do one of those, but kind of going through like a couple little gimmicks, you know, one being what was the 2025 value investing playbook? basically based on all your interviews, everything you've experienced that you saw in 2025, you know, what worked, what didn't, and then kind of go through like a 2026 value investing themes that maybe we can either call BS on that is not that important or like we should actually really look into and why. So, you ready to do our our playbook slashBS meter? >> I'm ready. Let's do it. >> Sweet. All right. So, first things up, we'll do this uh 2025 value investing playbook. So the first point that um you know I put together and uh thank you uh AI we love you um is you know it seemed like one of the main themes and part of this playbook was uh an anchor on valuation and how but using the right metric for the cycle. Let's dig a little deeper. You know is this was in your opinion a main theme of 2025 and why? Yeah, I'm not so sure. I don't know about uh I wouldn't necessarily change my metric for the cycle, but I think that you know I've I've written a book called the acquirers multiple which is which is arguing for this acquirers multiple which is the uh I did which is operating >> strategic >> operating income operating earnings comparing that to enterprise value. I think that's fairly bread and butter for a lot of investors to do that. Um, so there's really nothing like it's not proprietary or anything like that. I just use it as a as a to to describe what I'm trying to do, which is to find cheap businesses. Um, oh, that's the metric to find cheap business to to find cheapness anyway because the enterprise value captures debt and uh offbalance sheet liabilities and um preferred stock, minority interest, all those sort of things. So that's a better view of what you're paying rather than market capitalization which can be misleading when there's a lot of debt. And then operating income, which if you're looking at the bottom line earnings, it can be impacted by the capital structure. Interest payments and tax are all affected by the the capital structure. So looking at operating income, so you can get an applesto apples comparison of different industrial type businesses. And then that's what I'm trying to buy. Industrial businesses. That's so that's that's the price that you're paying and then you have to consider the underlying quality of the business. The you know are the earnings recurring? Are they likely to grow in the future? Are they declining? Do they convert into cash flow? Those sort of questions. So that's that's the approach that I that I like. Um in a market like this which has been a large growth market where a lot of it's driven by narrative and a lot of it's driven by um things that might happen in the future that you have to sort of see in the uh you got to read it in the tea leaves a little bit not so much in the financial statements. I do less well in an environment like that. Um but that's the the idea is that it's basically financial statement driven investing rather than narrative and trying to predict the future. Good. Yep. So uh I mean one other aspect to this is you know basically just you're avoid you're avoiding the things to really avoid or or if you if you really you know were focused on value investor background in 2020 is just avoiding anchoring on peak or trough earnings and kind of that blind reliance on forward during some of these regime shifts. >> Right. So we're looking at fi historical financial results. Um we look at Q's and K's and uh look at about 5 years of trailing uh statements to come up with what we think the business can do through a cycle and then we're often we're buying things that are closer to the bottom of the cycle. So for example, right now we have a large concentration in energy and uh folks who might have followed that cycle would know that oil topped out in 22 and oil has fallen pretty steadily since 22 to now it's sub $60 uh which has historically been regarded as supply destruction which is there aren't very many US-based oil companies that are profitable at $60. There aren't very many um new fields that are profitable at $60. So that's a good environment if you're a supplier of equity capital because um equity capital is expensive in that in that area because the prices are cheap like that would be the corollar rate of the price the prices are low oil prices are low and then among the energy companies we can find some that are still profitable still free cash flowing um some of them are buying back stock and so that's the kind of position that that I like to put on where probably close to the bottom of the cycle or clo certainly nearer to the bottom than to the top and still earning reasonably well with some hope that some geopolitical event will come along and that will cause oil to rally. So we look at, you know, gold's had a very good run, but if you some people will say you look at the oil the the oil price in US dollars and $60 used to be like a pretty good oil price, but there's been so much money printed since 2020 even. I think it's like 40% of oil of all US dollars that are outstanding have been created since 2020. And that has an impact on consumer prices and it has an impact on the oil price. So where $60 used to be a pretty good price, $60 is now the old $60 is really $90. So one way of comparing it, you know, on an applesto apples basis, it's another it's another uh commodity that moves around, but gold has long been considered sort of like a a monetary metal. And at the moment, you can buy 1 ounce of gold buys 100 barrels of oil, which is a very which is very very cheap for oil. oil and you could say, well, gold's had a pretty good run, so that's part of the reason why oil's so cheap. But if you look back historically at these points in time where the oil price has been as cheap as this relative to gold, it's often been at the beginning of very good runs for oil. So I think that >> energy is cheap um on in a on a gold basis. I think it's cheap in a US dollar basis as well. And I think you can buy oil equities very cheaply against a low oil price. And so, you know, there's a a revolution or something happening in Iran and that sort of caused the oil price to run up. Um there's we've taken Maduro out of Venezuela and Venezuela is an oil producing nation as well or or was historically and hasn't been more recently. And so that's also impacted the oil price, but that's the the focus in the the largest holding in the fund. So I have a risk limit of uh no more than 20% uh in any industry. And so that's we're up to our risk limits in energy at the moment. And so um that's a that's an example of the kind of stuff that the fund will do. >> Very good, man. We're we're going to be here for three hours. We're with uh I got to we got I got to hit my point. All right. Here we go. All right. So this kind of actually what you're talking about it kind of dovetales into the next kind of what I guess you'd argue potentially could have worked in 2025 and that's being able to separate cyclical pain from structural decline. So I mean what must go right for this business to recover identifying whether demand destruction is cyclical or it's structural you know so how do you how did you think about that when you when you look back on 2025? >> Yeah that's a really tough question. It's something like trying to figure out what something what's a value trap and what's not a value trap. >> Exactly. I I think it's hard to know in the moment. You really don't know until after the fact because there are lots of businesses that look like they're in secular decline that you can make a lot of money in a business that's in secular decline provided you pay a low enough price for it and then they're in runoff and so they generate a lot of free cash flow. They generate a lot of cash cuz they're not reinvesting as much. But then you have other businesses that they're swinging for the fences. They're trying to get themselves out of the hole and you don't want to be in something like that. So I I've I I've really never come up with a good answer to that question. I've been in things that were secular decliners and lost money. And I've been in secular decliners that lo that made money. And I've been in companies that look like they're in secular decline and turned around. And that's the ideal scenario because everybody in the market is offside when that happens. But I've certainly had my fair share of, you know, secular decliners that continued going down and didn't make money. also hard to really tell in those cases because sometimes, you know, you'll have, you know, everybody will just completely hate that industry, but there will be those one or two companies where it's just a great management team and they know how to manage, you know, the the ups and downs or the cyclicality of, you know, how people perceive that business. You know, it it's it's it's very difficult to say like, okay, this is so obviously a dead industry right now that we're talking about here when, you know, more often than not, it's usually not a dead industry. There will always be a couple survivors. It's true and it's very hard to predict what happens in the future as everybody knows, but one of the ways that you can combat that is by paying a low price. And so if you don't know what's going to happen and you're paying a high price, your return, you know, your return distribution is going to shift down. If you don't know what's going to happen and you pay a lower price, you shift your return distribution up. And so I think that paying a low price with high uncertainty often that is a pretty good combination. And you're going to get it's inevitable that you'll pick up uh these value traps in that process. But if you have enough winners out of that, then as a cohort, which is the way that I invest sort of portfolio at a portfolio level, they tend to do better uh because you're accepting that uncertainty when a lot of investors don't like it. that actually dovetales into you know the next uh theme of 2025 and the idea that narratives have followed price and not the other way around you know these story stories don't drive returns the price changes uh create the stories so how did you how do you think about that well that's one of my that's one of the things that I say a lot because you people something will be hated and then the price will start doing okay and then a lot of people will come out of the woodwork and and tell you how much they they like that and it's really it's just and and vice versa. It can be not a great business, but for whatever reason having a pretty good run in the stock price and so people will invent a narrative to and I'm one of them. It's impossible not to. It's just that what humans do. We look at patterns and we pull stories out of the patterns. But I think that um it's good to know that because then you can sort of ignore the narrative a little bit and focus more on the that's what I like to do just focus on the financial statements and try and figure out what's happening on a quantitative basis rather than sort of fixing a narrative and trying to predict what's going to happen out in the future if everything goes right. >> What do you mean you don't like being sold by a management team and hearing? >> I do. I love it. That's why I don't do it. I'm I'm I'm I'm I'm persuaded by people who are persuasive, you know, by charismatic CEOs. >> The same boat. I can't help myself. I I got to say it's such a beautiful gift, you know, to be able to do that. You just kind of hope that they're running a good business at the end of the day. U that's that's really the the hope, you know. Um again, you know, all these themes are very much interrelated, but I think this next one I I feel like you might have tattooed somewhere. Um, I'm pretty sure you do, but the idea of buying with a margin of safety and then hold for business quality. Yeah. Okay. It's so easy to say it was a 2025 theme. This is probably a theme we could attribute to every single year when you're evaluating potential uh idea. So, you know, it was 2025 any not that it was necessarily any different, but was there anything specific to 2025 that this theme kind of plays into? >> I think it's true. I think it's the question you're always confronted with when you're thinking about buying something is on a quantitative basis the valuation should be much higher than it is and the price is lower than it should be and the one of two things is going on there. Either the market's wrong about it in which case the price should catch up to the value or the market's right about it in which case the reported earnings are going to decline to catch down to the price. I get a mix of them in the portfolio. The hope is that the you get more of the catchups and you know it's like a magnitude and frequency type question where you hope that the winners win so much cuz I think that I'm I'm about 50/50 on the batting average but uh if you're a little bit higher if you get a little bit more performance out of the winners then you can shift that distribution up again. So I think it's a I think it's a really good point. What I think it's it's hard to implement in practice because that margin of safety is often a little bit of an illusion uh for many companies because they are in in sort of secular decline as we discussed before. >> Can you can we go a little bit more down that rabbit hole? That was that was I can't let that nugget go of the illusion of the margin of safety when there's secular decline. Can you can you expand on on that a little bit? >> Well, I think I don't think that people I don't think that many people I don't think the market is wrong when it's looking at a lot of businesses. I think that most people have a pretty good assessment of the valuation and and you can you you're getting this big discount. So you can see you can look at the numbers quantitatively over 5 years and come up with an intrinsic value. It's a forward-looking number that if the business continues performing as it has in the financial statements and then we just roll these financial statements forward for another 5 years, what does the intrinsic value of that business look like? And if the price is wildly dislocated from that, which is what I'm looking for, these wild dislocations, you get these things where there's there's clearly some dispute in the market about what's going to happen to these businesses. The business is very discounted because the expectation of the market is that whatever bad thing has been happening continues to happen. In like half of the instances, in my experience, about half of the instances, what the market thinks is right is right. And about half the market's wrong. And so you need to win more when you're right and lose less when you're wrong. And one of the nice things about paying a lower price is that you're already getting that discounted price. So if the market's right and it's a secular decliner, then you shouldn't lose much because the market's already made that assessment. But if the market's wrong, then that and the for whatever reason, the business inflects. And so there's a lot there's a one of the I have a lot of consumer discretionary uh in the portfolio. more recently, this is not always what the portfolio looks like, but currently there's energy and there's consumer discretionary as a secondary in that consumer discretionary has I think that there was a lot of stimulus out of 2021 and a lot of that wound up in the consumer discretionary businesses, retail and uh footwear and whatever else you whatever else fits in that category. And then you look at 5 years of trailing financial statements and they look like they're pretty strong. You know, this this happened through 2020, 2021, 2022. A lot of, you know, lumber had a run up. Every sort of uh little uh data series of a commodity or any kind of price had this runup and then it fell back and it made it quite hard to normalize all of these businesses. But I think that that consumer strength in 21 and 22 tended to consumer weakness. And I think the consumer's been quite weak since 22. And that's reflected in a falling oil price in a lot of other places as well. So the question is when you see these companies that are discounted, are they discounted from over earning in 21? And so they look like they've had three or four years of secular decline since 21, but they're really just going back to trend. they're going back to roughly where they were and then they fall through trend because the the sentiment is so bad in in a lot of these names and even though the business starts doing a little bit better the market is still looking at that 2022 print and saying well it's a long way off the 22 or December 2021 print being that like the peak the S&P 500 earnings per share peaked in December 21 not a lot of folks know that we're still sort of trading below where it was where it was then and And that's also becomes more pronounced as you move down from midcap to small cap to to small and micro. And the small and micro, they're really volatile and they're very sensitive to the economic uh whatever's going on in the economy. And so I think that it's been quite hard to figure out the true earning power. And so even buying at a big discount, I've found that a lot of these companies have continued to be weak. But I I look at things like um the coincident economic indicators and the forward economic indicators and it looks to me like we've inflicted without having any recession ever being declared at any point through there. We've sort of gone through a recession since 22 that now it looks to me like it's being it's getting close to bottoming for the consumer at least. And so I think that those sort of businesses that benefit from a little bit of consumer strength, which which could also be energy, to me that looks like they're they're prime for a pretty good run. And all of the multiples are pretty cheap in that in those areas. Yep. I you man, you the way you cover this stuff is like what that you've said it so perfectly. I mean it actually again leads into this next point about the leaning into mean reversion especially where capital has fled you know where kind of seeing where institutional ownership has been falling and it seems like their focus here has been more on small caps international markets and unfashionable sectors so want to comment on that >> yeah I mean I I hear from inst institutional allocator friends of mine that one things that's been going on is that private equity has been having difficulty sewing It's so the funds have been having difficulty selling their holdings and so they've created these continuation vehicles and so they raise money for a continuation vehicle and then the allocators and the institutions have to think about where they're going to pull that capital from to meet these calls for private equity continuation vehicles and so on and they haven't got their distributions. So they're raising new funds, they've got continuation funds, they haven't received their distributions. You got to pull that capital from somewhere. when they look around at the parts that haven't been working, it's small cap value, particularly globally, but also domestically in the US. And so all of that allocation gets pulled. And to me, that's what creates the Ford returns. And now we've seen that international international small value has taken off, but that was particularly bombed out. I think domestic US small value has yet to take off. Um, and I but I think it's getting I think it's getting close. is I think you're seeing it in the Russell 2000 a little bit which is a junkier index than say something like the S&P 600 which has got a profitability filter. Um that that transition seems to be happening now and I think a lot of it is because they've been starved of capital that investors in that area have been starved of capital. I think some of these businesses have been starved of capital and that's the kind of thing that creates these conditions for good returns. And if you're a capital provider, which is what an investor is, a fund is, you want to be providing capital to places that are starved of capital because you get good uh you get good prices, you get good forward returns. So I'm I'm a believer in mean reversion. I think that's the mechanics of mean reversion. I think that's how it works. And I also believe in trying to find these places that have been starved of capital and and putting capital into them. So I I'm I'm fairly hopeful for small value at this point for domestic US small value. Me too. Um, for >> talking my book. Talking my book >> for for no reason. >> Micro. Yeah. Um, so I mean this also this plays into this especially if we're talking small and micro as well is using balance sheets as a downside protection. You know that I we we can cover that a little bit. You kind of already kind of mentioned it. Is there anything more that we want to kind of cover there? Because again it's these are this is kind of a theme that is very much uh uh every year you want to you know kind of use balance sheet as downside protection in some respect. Um but is there anything specific to 2025 that stands out on this point as well? >> Not so much. Just that we've had a little bit of a normalization in interest rates. So where previously it didn't really matter. You could run with a lot of debt. That's certainly something that's impacted small and micro over the last few years of interest rates have gone up because they're right that they feel that their debts not termed out as well. They tend to pay higher prices. So they almost immediately eat the higher rates. Whereas midcaps and large caps, they term out their debt a little bit better. It takes them a little bit more time to feel the impact of higher rates. And so that almost immediately hit the earnings of small and micro plus you get some multiple compression because if you can get a 5% yield out of the 10-year Treasury, you need I I think you need more than 5% to be holding some of these businesses. Well, you want to be close to 5%. And then the balance sheet is just how long can they keep on going before they see a turn in the business. And the better balance sheets can last longer. And really this is a survival and endurance business. And so that I think that the rates going up has really started to bite in 25 and now we're seeing rates coming down a little bit. So maybe that works in small values favor relates to the next point is uh and again this is superfluous for any time but I think I between your pod and my pod this has been probably the number one thing I feel like I've talked about now and that's one just the general going where others won't. I mean, I think we've talked about that for 11 years on the pod since we started it, but specifically for this year is global and small cap for probably for yours specifically more small cap value. We always talk about how there's always opportunities in small micro cap, but especially on the global side. I can't tell you how many episodes we've done this year talking about global not just small but also micro caps and you know going Italy and Greece and Sweden all these different places and how I mean is the is it really that the most mispriced assets are often outside the US uh mega caps right now that you know really looking at Japan, Europe, Hong Kong and all these underfall local markets and at what point do we feel like it might you know that might turn. Also, I'm I'm kind of curious because we it's really been covered a lot at at least in our neck of the woods. >> Why I I think that you can see if you look back over the last hundred years, it's very clear like using domestic US data, it's very clear that being small is better than the small caps have outperformed and it tends to be because they've grown earnings faster. That's true over 100 years and the average over 100 years is something like 7% a year for being in small versus being in large. However, you get these around do around sort of bubble.com tech boom type things. You get a runup in in large for whatever reason. I don't know why it goes to large, but you know, you can think of the.com boom as one, the nifty50 is another. And I think we're living through one now where really it's mag seven which are just the biggest seven companies in the market are doing very very well and everything else is sort of the other 483 in the S&P 500 haven't been doing that well either. I think as you get further away from wherever the bubble is, the performance has been worse. And at the same time as there's this little bubble in AI or Mag 7 or the top tech stocks or whatever you want to call it, there's also been this weakness in the economy that has sort of the cyclicals and the other more normal businesses have suffered from and and certainly global is part of that as well. The only game in town has sort of been Mag 7. But I think that that kind of broke down a little bit the fourth quarter last year, maybe from October onwards. And I think that we're going back. We're normalizing a little bit now. There have been a few head fake normalizations in 24 and 25. So I don't you have to be a bolder man than me to kind of call it but I do feel like this is what it will look like where we're sort of returning to things that a little bit more off the beaten path doing better and the everything being concentrated in a handful of stocks which is a very unusual sort of situation that's sort of moving we're moving on from that a little bit I hope to to say the least we're going to have 150 names in Vegas like they better start they better start moving off the mega But uh just seven names but um you know the the main thing always every year also is we want to study our mistakes and you know just when you're looking internally but also looking at history's mistake. What would you say was maybe the mo the the core mistake or most or mistake that was most often made in 2025 either that you personally did or that you recognized amongst other investors? Well, my my funds are set up this the investment strategy that I have is based on it's back testing looking at 100 years of data and looking at trying trying to capture the very long-term themes in a 100 years of data. But I know that there are going to be these cyclical periods where it runs against and it's been a very strange thing and I talk about this on the podcast a little bit that the things that worked over a hundred years haven't worked over the last 10. And you might say, well, that's because everybody knows these things now and that values value is so well known. Like, who who doesn't want to pay a cheap price for for earnings? And I say, well, the thing that's been working is market capitalization, which is an even simpler calculation than figuring out the fundamentals of some of these businesses. So, I I it's a little bit ahistorical what has happened over the last 10 years. And it sort of it crescendoed a little bit last year although I do think it broke down at the very end. So I mistakes uh for me I I have this very systematic approach to investment and so a mistake for me would be not implementing my my strategy and so I did stick to the strategy last year but the strategy didn't do very well and particularly when you compare it to what the market did what the what the mag 7 did. So I think that to the extent that that's a mistake, uh I think the mistake is chasing Mag 7 and I think that it takes a little while for those mistakes to be revealed by the market. So I I'm going to be completely contrarian and say that the mistake last year was holding Mag 7 and the correct thing to do was be small value even though it didn't work. >> Well, you know, we're all long-term focused here, right? We won't hold you just to one year performance. Uh, you know, it's all good. You know, look, there's another year, which is what we're about to talk about now. You know, and that's, uh, the second part of the the interview that I wanted to chat with you today on was, you know, kind of the value investing themes for 2026. And kind of you tell me if this is something that you're putting a lot, you know, you're putting a lot of weight on or you're kind of like, you know, cool, sure, of course. You know, we think about that every year. you know that I guess that's a spectrum of like more you know putting a lot of weight on this to yeah I think about this every year that okay that's that's our spectrum so we were just talking about this the first idea here is being a mean reversion is no longer theoretical so after years of value dispersion 2026 increasingly looks like kind of a harvest year for patient value investors are you putting a lot of weight on that or cool yeah sure of course I love that well it does seem that main reversion hasn't worked in the market for an extended period of time. So, it would be a return to mean reversion beginning to work again. I think that mean reversion is something that works over a hundred years hasn't really worked over 10. So, I'm going to say yes. It's my hope that 2026 is a mean reversion year. All right. Number two, small micro caps as the primary hunting ground. You only allowed to say yes 100%. Every egg in that basket, of course, Bob, what are you nuts? I think I think you I still think you need to pick your places a little bit because it's true that the small and micro has underperformed, but it's also true that small and micro is still pretty expensive relative. So, if you look at the Russell 2000 or the S&P 600, which are both small cap indexes, I know they're probably bigger than a lot of your listeners and I invest in in in my smallest fund, but they're a good example where if you look at the top 50 names in the S&P 600, they're trading on a and that's the profitability. They are better businesses than the Russell 2000. they are trading at 40 times earnings and the smallest 50 in the S&P 600 are trading at 16 times earnings which is close to their long run average but by no means a big discount to the long run average whereas my portfolios my small portfolio has got a PE of 9 my bigger portfolio has got a PE of 10 so I think that you can find cheaper stocks out there but they're really under represented in the big indexes and I wouldn't be surprised if uh even the small and micro indexes which aren't great have a don't have a great in 26. >> I mean, look at the end of the day, no matter what year it is, we're always, at least in micro cap land, we're always watching for micro caps with real cash flow, but no sellside coverage. What a prime hunting ground that always is. Founder led or insider owned businesses, spin-offs, orphaned assets, post distress survivors, you know, that's always what we're looking for. I right like that's Yeah, I don't think there that's >> it is good. But again, like on that theme that I've been talking about, you know, Joel Greenblat wrote that great yellow book where he said one of the places that you can go and look in a spin-off and then there's often a good co bad co in the spin and the spin gets all of the debt and the shitty business and the good co gets a better balance sheet and gets the hold on the good business. and Greenblat pointed out that it's often the the spin code which is the shitty code with the balance sheet and the bad business that does better which doesn't make any sort of intuitive sense however that's not been true the spins because now everybody I think is aware of that and so folks have been buying the spins and selling the hold co um so that might have turned around maybe we'll go back to normalization and that but I think that that's an interesting it's always a good place to look you want to look at catalysts so the next theme is and it literally just did a pod with uh Robert Gardner from Grand Peak talking about this uh uh where he basically you know international value is greater than US value and if that theme will continue to persist you know the idea that I mean I think that what did I name the pod is uh he he said that international market micro caps right now resemble you know uh micro cap landscape in the US in the 1990s you know some of the key regions Japan, Europe, selective uh you know emerging markets. So I mean do you what do you think? Do you think this theme will continue? >> Yeah, I went to Tokyo last year. I spent a week in Tokyo, visited some businesses and some local investors and I'm you know I wanted to move. It felt like America in the 80s pre-LBO boom and I think that there's some wild things going to happen in Japan and they've got the stock exchange is trying to introduce all of these measures that there's a lot of effort to sort of have these businesses sell their cross shareholdings which has been the big issue and you know take some of the cash they've got on their balance sheet and give it to shareholders or do something with it. But uh as excited as I was when I went into the meetings with the managers, then I understood why uh the situation is the way that it is because they they're sort of they're very uh conservative. They're very concerned about doing any of the things that American type business managers would do. So I think it's going to be a long process there. But there are big funds at the top end of the market in Japan and they're paying prices that that are expensive globally. If you're in the small and micro in Japan and there's some very cheap stuff there, but you've also got the problem that the management teams and they're like because of the cross shareholdings, they still can't be shifted. So, it's going to take a long time for that to work out. But I do think that Japan as one place is very very cheap. And I'm sure that I think there's a lot of global small value will work for a long time. I'm I'm hopeful that US domestic small value does as well. >> Again, we need to get past just the magazine. >> Need to get a t-shirt. Put it on a t-shirt. >> Yeah. Right. I don't know what what that shirt would look like. >> Small cap value. >> Put it in the chat. GPT. Like, how do we put make me a >> Send small cap value. send it um for 2026. Um we talked about this, but do you think this will continue to persist 2026? Balance sheets matter again. Yeah, I do. I think we we've as rates have run up, rates have come back down. I don't know where rates will be through 2026. I still think we're low on a on a very long run basis, but I think that it's the change in the rates that seems to impact businesses more than the absolute level of rates. And so when rates went up like that blew up Silicon Valley Bank and it certainly impacted all the smaller micro coming back down they do seem to be a little bit perkier this year but I have no idea where rates will be at the end of the year. I I my I think everybody wants them lower. I feel like that everybody wants lower rates but who who really knows? It could be if we see some an inflation shock rates will go back up. It's impossible to predict but it's always important. Yes. Absolutely. All right, we're gonna do rapid fire because I've also I'm feel like I've already taken too much of your time, but here um asset heavy businesses are back. >> Yeah, I think so. >> Yeah. Why Why do you I'm Okay, I said rapify. I don't care. I'm going to Now I'm going to ask why. >> Well, I'd say oil and gas as one. I think there are a lot of industries that have suffered a little bit. We've been it's been a tech compounder asset light market for a long time and they've really they they in the last quarter of last year a lot of those businesses really got they saw those multiples compress a lot but they still look expensive to me so it's going to be interesting. I think it'll keep them going. >> How about banks and financials? Still a stockmakers uh will it be a stock pickers market? >> I think that they're cheap uh as a as a cohort but again it's a you have to be a little bit careful because it depends on their exposure. It depends on, you know, their what their asset liability mix is. I think that you can make a lot of money there, but you you need to know what you're doing. I think this next one, let's dive into this a little bit because I'm I'd be curious to see um how this will play out in 2026 because especially in micro cap, we're always this I don't know if it necessarily will ever be a fatigue. there will always be a new narrative. But the idea of that uh narrative fatigue in concept stocks, >> yeah, I think >> I think we've seen that. I think we've started to see that. I think that if you look at the the names that were hot last year, I think that there was a lot of compression through the last quarter of last year. A lot of those names, but I but then I look at those names. I don't want to sort of name those names, but I look at those names and I we've seen a lot of compression and I think that they don't really have any many of them don't have an underlying business to provide any sort of downside support. So, it could easily continue to see that compression in that in those narrative type names. I mean, yeah, I probably I don't It's just it's one of those things where it's like I think because AI was you know when you think of certain narratives that have been hot over the last year or two like I mean they've been so hot and been talked about so much that you know it's kind of hard to think all right well what what could possibly be hotter or more talked about than you know AI or something you know for 2026 you know what I'm trying to say >> well if you look at a stock like open I will name names for open you know that was trading at like a dollar or or below a You know, I'm annoying about this. A shareholder, not a shareholder. >> No, no, no. I'm not a shareholder. I'm not a shareholder. >> Yeah. >> Open uh got a promoter and then it ran from below a dollar to to 10 bucks and then there and the promoter said it'll go to 80 or or something like that. So, a lot of folks piled in and it's gradually dribbled down from 10. I think we've seen this a few times with like AMC and those I would call that a narrative story stock where really the underlying finan financials just don't support the claims that they're making and the businesses really got to do something that it's never done before to justify the valuation and so they stampede a whole lot of retail names into these stocks that don't support the valuation and then the promoter either gets out or his warrants and options have paid off and so he doesn't care as much and then it just sort of leaks out over years and years and years and all these retail guys who got stampeded into this stuff suffer as a result and I think open is a good example of something like that. I don't know how many times these people can allow it to happen to themselves but if you you know you're in AMC you're in open these kind of names and then you watch that fall for years and years it's very demoralizing. I don't know how many times people can keep on coming back to those kind of promotions but it does seem like there's this neverending line of people prepared to do it. I don't know. I feel bad every time I look at it. >> It seems like people are getting more savvy with it if I'm being honest. You know, like they'll know that a promote's happening and that, you know, they don't care what, you know, there's some that will still be like, "Oh, what is the tell me more about the business?" But then there's folks that are just traders that are just trading around it, you know. So, like, you know, on one hand, they're you know, they probably know that it's a promote, but at the same time, they're like, "All right, cool. There's volatility. Let me just, you know, make make incremental margin on it." and you know not not investing but just kind of like you know playing the game. >> I saw that open tweet like the promotional tweet come out in real time and I thought no one is going to do this surely and then of course it ran up like more than 10 times. So I thought well there you go that's not people will do >> unfortunately you see it all too much in micro cap land. It's a mess. Um but all final one you know for 2026 value equals behavioral advantage. Um, do we still think that that is something that is to consider in 2026? I do. I think it's been a behavioral disadvantage for the last 10 years, but I do think that part of what keeps these strategies working over the long run is periods of underperformance. And so, it's had its period of underperformance. Be great to see some outperformance for a period of time, but yeah, all investing is is behavioral investing. Trying not to do what the crowd is doing, I think. And that's the hardest thing. All right. So, I mean, if I had to put one line uh for the the 2026 playbook, you tell me if this, you know, if we need to adjust it or not. But basically, buying real businesses at real discounts in places others aren't looking and hold them longer than feels comfortable. Is that beautiful? >> That's a good one. >> Chat GBT is great. I I just I'm I'm not I'm not here to say I'm some genius that wrote that. I'm definitely not going to do that. and and uh and people like, "Wow, Bobby's such a great writer now. Wow. Where did where did he come up with that? Like, you should write a book. It's >> just a tool. It's just a tool. >> It's just a tool." Um well, um listen, you you've spent a lot of time with us. This is this is actually pretty fun. We should do more of these like gimmicky things more often, but final thoughts as you're going into 2026, you know, high level when it comes to value after. I don't know. You you tell me what's uh what's on what's on your mind that you've been jamming on specifically then for 2026. >> Yeah. I think that there's been a it's it's been a mag 7 dominated market for uh it's been a tech mag7 market for an extremely extended period of time. Uh it's ahistorical and I think that buying off the beaten path undervalued stocks that's a strategy that has worked hasn't worked so well over the last few years but I think it will continue to work into the future and it looks like it's been working again since about October last year. So fingers crossed that continues for 2026. >> All right. Well, Toby, with that, where can our audience go and find more information to follow you on the socials, podcast, the funds, everything? My firm is Acquirers Funds, and it's acquirersfunds.com. I'm on Twitter at greenback grd. And uh I have a website with a free screener, acquirers multiple.com. >> Let's give the book a little shout out. You know why not? The acquires It's multip you come out with a new version of it this year. >> I I have a new book. Yeah, I have a new book called uh Soldier I have it right here in front of me. Soldier of Fortune. >> Oh, yeah. There it is. Oh, okay. Cool. >> It's not It's not quantitative. It's just a It's just a book about I I like Warren Buffett Sunsu Ancient Art of Risk Taking. I just put some ideas together. Had to be fun. >> Did you also chat PT it and say, "Hey, can you help me write a book that combines?" >> I wrote it before Chat GPT sort of >> made it took over. >> I I got it out before Chetch PT took over. Yeah, >> that's awesome. I love that title, Soldier of Fortune. Oh, that's so appropriate. Well, uh, Toby, always a pleasure, man. Hopefully, we'll see you in Vegas this year andor Toronto. And, um, just thank thank you for your support over yours and look forward to the next combo. >> My pleasure. Thanks, Bobby. Congrats on the sale. >> Thank you, man.