Trading Saul Stocks

Andy.

As Buffet says, trying to use non-GAPP earnings is a slippery slope that quickly dissolves into outright fraud, both on the part of those who publish those accounting tricks and on the part of them who think they are being oh-so clever to use them.

Financial fraud is financial fraud, and the only reason it is tolerated is regulatory capture. That’s regrettable. But that’s also quite predictable, given the money to be made from the scam.

As for me being at odds with Ben Graham, it’s quite clear you haven’t read his book, The Intelligent Investor, with any understanding. I applied his methods and insights to the bond market, and amassed a small fortune, enough that I could go to cash entirely, any day I choose, and never run out of money. In short, using Ben Graham’s methods and insight I solved the retirement wealth problem for myself.

For sure, his methods and insight aren’t the only game in town, nor are they necessarily suitable for all would-be investors. But they are a good place to start and a good place to stick with, good markets and bad.

We live in a time of lies. *“Saddam has WMD. Our southern border is secure. The covid shot is safe and effective. Ukraine is a democracy. Deficits don’t matter.” * In our own lives, we don’t have to accept those lies. In our investing, we don’t have to accept non-GAAP earnings as proof of anything but the attempt to commit fraud.

Charlie

Charlie,
I have no problem with the way anyone chooses to invest. The more I learn the more I realize how little I know.

People do all type’s of adjustments to financial statements to help glean information out that they think will give them an edge. I once had a guy say that he removed all stock based compensation from FCF because he didn’t believe it gave him a true understanding of how much money the company was making. I told him he had the right to do that but just understand that now you are using adjusted FCF. Adjusted is just that and as long as someone tells you what they are doing I do not see any deceit.

As far as the intelligent investor, no I have not read it although I do have it sitting on my shelf. I am a voracious reader but I have so many books it takes me awhile to get through them because I am always finding another book I want to read. But the truth of the matter is they have done studies where they have found that Value investing has been out for over a decade. Here is one such study.

[*The anatomy of a stock market winner_Master_s_Thesis.pdf](file:///C:/Users/adbro/Desktop/Investing%20books%20and%20information/The%20anatomy%20of%20a%20stock%20market%20winner_Master_s_Thesis.pdf)

Even Warren Buffet does not invest like Graham anymore because he found that it wasn’t productive enough. Charlie Munger changed his mind on how to invest. But if you think it gives you an edge more power to you.

Charlie there is so many ways to invest and people are always trying to find an edge. The more I learn the less I am willing to state that I am right. I am unwilling to argue with anyone that their way of investing is wrong and my way is right, but I am willing to talk over my investment philosophy and listen to other people’s perspectives to hopefully find a nugget that will help me. That is how I found you and Quill, Charlie, and you both have helped me on my journey immensely.

Peace,

Andy

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Andy,

What you’ll find of value in The Intelligent Investor is his emphasis on investor psychology and his advice to “just not do anything too stupid”. The guy’s a dry-witted, standup comedian.

As far as each investor needing to find his or her own way, that has been my pitch from the get-go and part of the reason I question everyone and everything. Ideological or methodological purity is nonsense. Always, there are exceptions and special cases.

I don’t remember the guy’s name, but he ran a solid YouTube video how he makes millions with his method, all condensed into simple rules. #7, “Follow the rules.” #8, “Know when to break them.”

I don’t like financial spin, nor political spin, nor accounting tricks, because it makes my job harder.

Charlie

“Caminate, no hay camino. Se hace camino al andar.”

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Just because they Call it Gaap doesn’t mean it isn’t a constructed accounting trick. Who knows some day it may change where Non-Gaap is the Generally Accepted Practice.

Andy

Andy,

GAAP is the anacronym for Generally Accepted Accounting Principles which isn’t an immutable set of rules, but a best-efforts attempt to provide investors with guidance about the companies they are investing in by forcing companies to follow a set of agreed upon guidelines that hope to capture the truth as much as might be possible.

Everyone knows that financial statements done in accordance with GAAP rules aren’t THE TRUTH but a fiction of convenience that does make comparisons between companies possible. (Marty Whitman --in his book on value investing-- goes into this matter deeply, as do others.) But GAAP is the best we’ve got and a whole lot better than what investors in other countries have to deal with. So I’m willing to defend it and think most so-called “improvements” aren’t so.

Decades ago, when I was breaking into bond investing, one of the smart things I did was to go back to school and take the lower-division accounting courses. Aced the classes, of course, because I was there for a specific purpose and had an immediate, real world use for what I was learning, namely, how to make sense of 10Q’s and 10ks. Over the years, I’ve gotten lazy, and I now use such shortcuts as what SWS provides for their summaries being “good enough for my purposes”. But GAAP-conforming financial statements are the gold standard, and changes to them only come slowly and thoughtfully.

Charlie

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That is a fallacy Arindam, it is a pretty picture that makes some people feel good, that the numbers are correct, that gives people a rule based approach that they feel gives them an edge.

I would agree that it is better than what other countries have to deal with but I wouldn’t fall on your sword trying to defend it. If it was so well done you wouldn’t be using charts trying to get an edge. You would just use the numbers. Many people do who actually believe that they give you the best edge like Buffet.

You didn’t have to do that. There are many texts on lower division accounting courses that will give you a grade A course. You just need to put your nose to the grind stone and work through them. Everything you want to know is at your finger tips.

Yes and that is fine. I have no problem with that. But it’s my money on the line and I can choose to read them anyway I choose to. It only states that companies have to follow Gaap rules but nowhere does it state that they can’t give Non-Gaap also.

Andy

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Andy,

Companies are like our dear gov’t. They spin their numbers and lie about their results, because there are short-term incentives for doing so. But in the longer run, the truth will out.

Charlie

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So you can’t make long-term decisions on GAAP numbers because they are distorted by short-term incentives?

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Pete,

As I wrote earlier, we live in a time of lies. *“Saddam has WMD. Our southern border is secure. The Covid shot is safe and effective. Ukraine is a democracy. Deficits don’t matter.” *

Financial statements --GAAP-conforming or not-- suffer from the same problems. Companies are not incentivized to tell the truth. They are incentivized to lie, and they do so, all of them, without exception. Some more so than others, chiefly those who resort to non-GAAP trickery.

A good way to see the situation is ‘Plato’s Cave’. Financial reports are shadows cast upon a wall. Charts based on Price-Volume-Breadth-Sentiment are often no better, given how lagging and fragmentary they are.

Charlie

So we finally break free and see the light of the real world and it still sucks. Gotta trade on something. If everyone believes it, it is as good as true.

Maybe we should start and economic philosophy thread, this is getting too polluted.

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ELF was strong today and approaching a buy point, so I added to it in my Saul account, which is now about 99% invested. Active holdings: ELF (28.5%), AXON (29%), and CRWD (44%). I had sold NVDA before earnings even though I had a good profit cushion, that did not work and I never got back in (but also have lots in other accounts)

ELF is in Leaderboard and raised to a 1/2 position there.