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Index Investing Myth Buster: Tom Brakke

Monday, September 23rd, 2013 FVL_underperformsIndexesAndChargesMore

Tom Brakke recently featured our Dangers Zone article on FVL. His article highlights the lack of performance of FVL versus other true index funds and supports my thesis.

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Non-Operating Unconsolidated Subsidiaries—Invested Capital Adjustment

Thursday, September 19th, 2013 UnconsolidatedSubsidiariesIC_Fig1

This report is one of a series on the adjustments we make to convert GAAP data to economic earnings. This report focuses on an adjustment we make to convert the reported balance sheet assets into invested capital.

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GM’s Long Range EV A Further Threat to Tesla

Thursday, September 19th, 2013 GM’s Long Range EV A Further Threat to Tesla

On Monday, GM announced their plan to develop an all-electric vehicle that could go 200 miles per charge, just like Tesla’s Model S. The catch? GM plans to sell their car for only $30,000, less than half of the $62,000 sticker price for the Model S.

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Apple Stays Rotten

Thursday, September 19th, 2013 AAPL_ROIC

The “value” in Apple is an illusion. Astute investors need to look at Apple through the lens of what is a reasonable ROIC in the future.

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Wall Street Journal Features My Advice on Dividend Stocks

Thursday, September 19th, 2013 Wall Street Journal Features My Advice on Dividend Stocks

Popular dividend stocks could be ticking time bombs.

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GAAP Opinion versus Economic Fact

Thursday, September 19th, 2013 GAAP Opinion versus Economic Fact

GAAP financial statements fail to meet equity investors’ analytical needs.

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The Disconnect between Investment Theory and Practice

Thursday, September 19th, 2013 The Disconnect between Investment Theory and Practice

A disconnect between investment theory and investment practice exists and is manifested in the way investors should value stocks versus the way they actually do value stocks.

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Distinctions Between “Growth” and “Value” Investment Styles Are Irrelevant

Thursday, September 19th, 2013 Distinctions Between “Growth” and “Value” Investment Styles Are Irrelevant

Growth without profit (i.e. value) offers no investment merit. Conversely, value without growth offers little upside incentive for investing in any business.

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Price-to-Earnings and Other Multiples Are Not Determinants Of Price

Thursday, September 19th, 2013 Price-to-Earnings and Other Multiples Are Not Determinants Of Price

P/Es and other multiples are the results of of value creation/destruction not a determinant.

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Danger Zone 9/16/13: E*Trade Babies

Monday, September 16th, 2013 DZ_Fig1

Online trading firms aim to exploit the gullibility of many retail investors by encouraging the myth that they can outperform professional money managers armed with vastly greater resources, experience and expertise. The E*Trade babies are the most glaring symbol of this myth. The symbol also reinforces the notion that investing is an easy task that takes no special effort or aptitude to succeed.

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September’s Most DANGEROUS Stocks Available to the Public Today

Wednesday, September 11th, 2013 September’s Most DANGEROUS Stocks Available to the Public Today

New Constructs released September’s Most Dangerous Stocks report to the public today.

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September’s Most Attractive Stocks Available to the Public Today

Wednesday, September 11th, 2013 September’s Most Attractive Stocks Available to the Public Today

New Constructs released September’s Most Attractive Stocks report to the public today.

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New Stocks For Most Attractive/Dangerous Lists

Wednesday, September 11th, 2013 DTV_Fig1

September sees 16 new stocks make our Most Attractive list and 14 new stocks fall into the Most Dangerous category. Our Most Attractive stocks have high and rising return on invested capital (ROIC) and low price to economic book value ratios. Most Dangerous stocks have misleading earnings and long growth appreciation periods implied in their market valuations.

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Discussing FASB’s Lease Proposal

Tuesday, September 10th, 2013 Discussing FASB’s Lease Proposal

On August 27th, I met with my fellow members of the FASB’s Investor Advisory Committee (IAC) to discuss the proposed treatment of operating leases on the balance sheet by the Financial Accounting Standards Board (FASB).

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Danger Zone 9/9/13: Angie’s List (ANGI)

Monday, September 9th, 2013 Dislike

The customer review website is playing investors, and even its own customers, for fools. I am not sure that consumers will use ANGI’s ratings at all in the not-too-distant future.

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September’s Most DANGEROUS Stocks Available to Subscribers Today

Thursday, September 5th, 2013 September’s Most DANGEROUS Stocks Available to Subscribers Today

Paying customers can access September’s 40 Most Dangerous Stocks as of midnight last night. We provide 20 large/mid cap names to sell or short and 20 small cap names in this monthly newsletter.

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September’s Most Attractive Stocks Available to Subscribers Today

Thursday, September 5th, 2013 September’s Most Attractive Stocks Available to Subscribers Today

Paying customers can access September’s 40 Most Attractive Stocks as of midnight last night. We provide 20 large/mid cap names and 20 small cap names to buy in this monthly newsletter.

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Midyear Acquisitions – Invested Capital Adjustment

Thursday, September 5th, 2013 Acquisition_Fig1

When a company makes an acquisition, the entire purchase price is added to the company’s balance sheet in the year of the acquisition along with any assumed debts or other long-term liabilities. However, the only income added to the income statement is that which occurs after the acquisition closes. In other words, the balance sheet is charged with the full price of the acquisition while the income statement only gets partially impacted.

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Reported Net Non-Operating Items – NOPAT Adjustment

Tuesday, September 3rd, 2013 Non-Op_Fig1

Income statement adjustments include financing items like interest expense/income, preferred dividends and minority interest income. These items are related to the financing of a company’s operations, not the operations themselves. We always calculate NOPAT on an unlevered basis.

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Danger Zone 8/30/13: LinkedIn (LNKD)

Friday, August 30th, 2013 Danger Zone 8/30/13: LinkedIn (LNKD)

LNKD continues our theme of hot stocks that have overshot their fair valuations. So far this year, LNKD is up 110% while the S&P 500 (SPY) is only up 15%. LNKD is a high-momentum stock in a popular sector, so investors are turning a blind eye to its competitive weaknesses and high valuation. Most people are aware that LNKD is expensive compared to its current earnings, but few people seem to aware of its off-balance sheet liabilities and the alarming level of profit growth implied by its stock price.

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