Marc Gerstein

Beware of GAAP Again

TTM is irrelevant either way.

If you think bank losses are over with, then the irrelevance of TTM is clear.

If you think there's more trouble ahead, you should be thinking about where that trouble might be coming from (the same place as before, or someplace different) and how large the next potential trouble are might be (something that may not be discoverable anywhere int eh financial statements but probably requires a journey into the depths of the footnotes and all the tables included there).

Whatever your point of view, a go-no go decision on a bank stock will succeed or fail based on what happens in the future. To naively assume that the details of 2008 will repeat is not the way to get there. The analysis has to be done fresh.


On Oct 15 11:57 AM ryanclarke wrote:

> If you think the bank losses are over with ... then you are right.
> Don't latch on to TTM. But I doubt the banks are done righting off
> consumer loans ... and such will be obvious sometime in 2010.

Beware of GAAP Again

That's the flaw in GAAP.

What you are talking about is disclosure. That's critical and I always said that. I'm talking about something different; developing a basis for future forecasting. If you don;t like management, you'll assume less favorable progress off that base than would be the case if you liked management. But wither way, unless you have a set of numbers that gives you a proper base for forecasting, then you can not be doing analysis.

People make money from doing analysis. Nobody in the investment community makes money from casting blame for what happened in the past. I can't even begin to count the number of investors who missed out on opportunities for gains that were right in front of them back in 2002-03 simply because they were angry. What was the point in that? Who did they punish?


On Oct 15 11:20 AM logicalthought wrote:

> >>One example (of an unusual expense) would be losses on the disposal
> of a business.... So let's stop bashing analysts and corporate executives
> and start advocating for change where it's needed, with Generally
> Accepted Accounting Principles.<<
>
> Don't you think that if management pisses away shareholders' capital
> on poor investments it should be reflected in the earnings as indicative
> of the poor quality of management? Okay, do you want to give them
> a free pass for one bad investment every 10 years? Fine. But what
> about if it happens with even semi-regularity? Do you seriously think
> that if the GAAP definition of an "extraordinary loss" were broadened,
> this wouldn't open a crack through which options-incentivized corporate
> execs wouldn't drive a tractor trailer?

Beware of GAAP

That does not suggest there's anything wrong with the quality of the non-GAAP data set. Instead, it suggests there's something wrong with the way the company has been performing and separating non-recurring from recurring would make this sort of noise more easily visible than it is now.


On Jun 15 10:21 AM SivBum wrote:

> I am all for digging into the details of balance sheets and discount
> one time charges. However, when those expenses become recurring non-recurring
> and quarterly one-time charges (such as stock options, layoff severances,
> offshore plant closings, borrowing costs etc), time to question
> the quality of those non-GAAP data sets.
>
> Case in point, csco has reported record earnings in the past few
> years and its stock at less than $20 rtq is still a tiny fraction
> of its Apr 2000 high of $76.

Disagreeing with Rob Arnott: Past 40 Years Not Lost for Equity

xxxx, I hear you and I hope other do as well. What you describe has, actually, stood for a very long time as a very sound, prudent way to approach the stock market: Do the best job you can selecting the best stocks you can find and be willing to ride out temporary setbacks given that over time, the superior traits of the stocks you hold will carry the day. This isn't just a line crafted by a fast-talking broker, but the philosophy of many of the most well respected investment minds of our age; Warren Buffett, etc, etc, etc. Unfortunately, though, we just came through a period that broke all the rules and caught pretty much everybody by surprise. We went beyond an ordinary bear market. We saw, instead, a massive liquidation of equities as an entire asset class with selling concentrate not on what should be sold but instead on what could be sold (to raise badly needed cash). And unfortunately, all too often, that which could most easiuly be sold consisted of some of the best stocks, the ones the most prudent investors rightly held. So even the best and brightest got slammed this time around.

Going forward, a big question for all of us to face is whether this was a one-shot thing, in which case, we could look forward to picking up the pieces and going back to what we had always done, or whether this is the start of a new era in investing, one that requires market timing to become a part of the regular investment discipline. It'll be years before we know the answer. Speaking for myself, I len toward the latter view and have been working on market timing, as can be seen from several other articles i poisted here on Seeking Alpha.

I know this is little consolation for what you experienced in your assets. But all we can do is learn from what happened before.


On May 07 03:19 PM xxxx wrote:

> lastly because of what they teach people tend to get in at the wrong
> time and take money off the table way too late. maybe not getting
> into the market, but for sure taking out withdrawls. don't forget
> they often penalize you for removing money as well. so in effect
> you are their hostage. the whole reward system in the finnacila world
> is screwed up. the shareholder has the least say in anything. <br/>

Disagreeing with Rob Arnott: Past 40 Years Not Lost for Equity

This does not take reinvested dividends into account. You are right; they could add substantially to returns. But that would also be the case with treasuries, where one could reinvest interest payments. The short-hand answer would be to assume it's a wash between the two. If a more comprehensive study were to be made, we'd find pros and cons on both sides. In favor of treasuries, we have the fact that a larger portion of total retun comes from interest. Favoring stocks, we find four payments per year rather than two, and a likely rising income stream (from dividend growth) rather than static payments.


On May 07 12:59 PM user396040 wrote:

> Do these analyses take reinvested dividends into account? Over a
> long period of time, this can make a big difference. Back in the
> late 1970's and early 1980's, dividend yields on blue chip stocks
> were very high.

Four Myths About the Free Market and Its 'Demise'

I think we may be missing something by trying to cast the entire debate within the realm of economics.

I suspect it can be proven that the free market is the most effective economic system there is. The question, though, is whether that's really what we're after. There are social, political, etc. realms that also exist in our world and they, too, will assert themselves.

The goal of the generally-free-sorta-r... markets we have now may be not so much the best possible economic system but the best possible balance of a variety of interests; economic and otherwise.

Perhaps this continual balancing and tuning is one of the reasons why our society has proven remarkably resilient over the generations, and why, even in our most heavily regulated phases, our economy was able to stay a heck of a lot more open than even the most liberal among socialist economies.

Rigid adherence to any sort of dogma, pro market or otherwise, is what might prove most dangerous. In this specific crisis, I hope the Feds do whatever has to be done, economic theory be dammed, to make sure damage to Joe Average is reasonably contained. Main Street hates, but has learned to live with layoffs, retraining, rising prices, falling prices, etc. But tampering with Joe average's notion of risk-free savings . . . we really don't want to mess with that (the crackpot looking for 10% on a money market fund is one thing; someone who assumed safety with a 1% money market fund better not be told "You lose!").

Actually, this isn't really all that alien to finance. So much of the theory we utilize depends on the existence of risk-free investing as a starting point. Taking that away puts everything back to square one; all economic theorists erase everything, pull out the classic utility functions, and start over.

We grew up with the notion that FDIC was enough to suffice. But that was set up a long time ago. We may need to modernize a bit.

Meet Mr. Market: Jim Cramer

Watchinglines makes a point. What’s with the Cramer bashing?

Yes, he’s emotional, an entertainer, etc. etc. etc. But to call him a snake-oil salesman (even to dignify such a charge when levied by unspecified others) is inappropriate. Besides the do-your-homework instructions mentioned by others, do snake-oil salesmen offer this: www.thestreet.com/madm...

It’s a section of TheStreet.com web site that tracks all his Mad Money picks, the great, the good, the bad, the ugly and the downright wretched. He shows where he won, and where he lost. Snake-oil salesmen don’t do that. They discuss winners only.

Frankly, I believe Cramer’s disclosures put him way ahead, in terms of integrity, of most TV talking heads who say what they want but are never asked to account for the effectiveness of what they say. Heck, I best many (most?) would decline to go on the air if they knew their utterances would be publicly tracked.

Do not assume I invest like Cramer. I don’t. Actually, I’m in the value camp myself. But that’s no reason to disrespect others who approach the market differently. And as to his showmanship . . . I tip my hat. Good for him.

I wonder if the true core f the article is this: “The painful thing is that just when you think something can't get much cheaper, it does.” Yes, it hurts. But it’s not Cramer’s fault. Cramer didn’t push oil up to the levels we see today. Cramer didn’t issue sub-prime loans. And just when we thought we were getting our arms around the latter, we see other kinds of bad debt (e.g. credit card). Cramer didn’t do that. There are deep fundamental problems that justify the lower lows; falling stocks don’t need Cramer’s jawboning to do what they do.

My suggestion is to stop whining about Cramer or the fictional Mr. Market and do the best you can in assessing fundamentals (or technicals if that’s your approach). Casting blame accomplishes nothing.