[12/13/18 NEW] Spotify Isn’t Profitable? Big Deal!

Summary Spotify is hammered for failing to report profits, but that’s irrelevant. Major expense items in its P&L, like R&D and certain finance costs, aren’t really operating expenses. What really matters is the business model, and Spotify’s is positive for customer growth, churn, and gross margin. (Less so for customer duration and ARPU.). The media…

[11/16/18] Value Investing Isn’t Dead Yet, Just Wounded

Value investing, which is often traced back to Ben Graham in the 1940s, is among the most influential trends in finance in recent decades. Value investing is based on the idea that lots of stocks are out of investors’ favor because of myriad of reasons, such as recent losses, management upheaval (think GE), product failures,…

[10/30/18] Machine Learning To the Rescue

My previous blog post (“Beware! Estimates Dominate Financial Reports,” October 13, 2018) alerted you the hidden secret of accounting: Most balance sheet and income statement items are based on managerial subjective estimates and projections (like depreciation, assets’ write-offs, bad debts, expected gain on pension assets, etc.). The financial data that many investors are using literally…

[10/13/18] Beware! Estimates Dominate Financial Reports

Estimates Are Hazardous to Your Wealth Everyone knows that accounting is boring (not when I teach it, though), but, at least, people think it’s factual. No fake news. After all, accounting comes from counting―counting money, units of inventory, etc. All facts. Nothing further from the truth. Except for a few items on the balance sheet,…

[09/01/18] Scrap Quarterly Reporting

Summary I believe terminating quarterly reports is the right move, but for the wrong reasons. Forget managerial myopia. There is a much better reason to scrap quarterly reports: they aren’t useful anymore. These reports, and earnings in particular, have lost in recent years much of their relevance to investors, due to misguided accounting rules. Let…

[09/01/18] Why Trump is right about wanting to end quarterly earnings reports?

Article feature – Yahoo Finance – August 19, 2018: https://finance.yahoo.com/news/trump-right-wanting-end-quarterly-earnings-reports-135011336.html By Julia La Roche, Reporter President Donald Trump tweeted on Friday that he’s asked the Securities and Exchange Commission to look at moving quarterly reporting for publicly-traded companies to a six-month schedule. Trump later told reporters that the idea was raised by Pepsico’s (PEP) outgoing CEO Indra…

[08/01/18] Who Reads Financial Reports? Nobody!

For several years I have argued, based on comprehensive statistical evidence, that corporate financial reports―quarterly and annual statements―have lost most of their relevance and usefulness to investors. Corporate earnings, in particular, are no longer a reliable measure of enterprise value change, nor are they indicators of future performance and growth. In fact, as I have…

[07/13/18] Should You Invest in “Flips”?

These are public companies that were taken private (LBOs), and subsequently flipped back to the public market. There are quite a few of those―Dell most recently―and the misconceptions about those companies abound. As always, we’ll look at the evidence. But first to Dell. Dell was a highflier in the 1990s, rising fast with its innovative…

[06/15/18] The Endangered U.S. Public Company

There were 7,509 U.S. public firms in 1997, but 20 years later, in 2016, the number of stock exchange traded companies shrunk to 3,618; a 52% decline! Even more surprising, this disappearance act of public companies is unique to the U.S. In fact, the number of listed firms outside the U.S. increased practically every year….