[02/27/19] When Will They Learn? Big Mergers Often Fail

On Friday, February 22, 2019, shares of food giant Kraft Heinz (KH) dropped 27%, amounting to a $14 billion shareholder loss. The main reason for the price calamity: a $15.4 billion write-down of Kraft’s major brands, like Oscar Mayer, Velveeta Cheese, Planters Nuts, and Maxwell House Coffee. An asset write-down means that due to operating…

[01/26/19] Here We Go Again: “Beware of Short-Term Investors”

A sure way to grab a headline and 15 minutes of fame (paraphrasing Andy Warhol’s immortal quip) is to blame investors and/or corporate managers of being myopic, that is―short-term oriented. Despite the fact that there is absolutely no evidence that neither investors nor managers are, in the main, short-term oriented, such claims are often made…

[01/13/19] Wikipedia, an Investment Tool. Who Would Have Thought?

On January 2, 2019, Apple stunned investors with a bleak revenue guidance, lowering the previous guidance for first quarter 2019 sales of $89-93 billion to $84 billion. (See January 2, 2019 Apple CEO’s letter). A “major black eye” called it CNBC. Investors agreed: Apple’s share price dropped 10% (the market overall decline was 2.5%). This…

[01/03/19] Regaining relevance in financial reporting

Interview first published in Strategic Finance magazine by MARK L. FRIGO also readable here on January 1, 2019 How can CFOs and finance organizations improve the relevance and value of financial reporting? Like the competitive life cycle of a firm or product, financial reporting and accounting are at a crossroads: decline or resurgence. Significant forces of change during…

[12/22/18] Why Are Hedgefunds Underperforming?

Hedge funds underperformed passive investments for the past 10-15 years. The reason: structural changes that resulted in a 50% fall in the number of public companies, due to mergers, financial failures, and low IPOs. The remaining companies are much larger and slower-growth. Identifying promising investments among such companies is very difficult.   “Hedge funds typically…

[12/13/18] 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,…