The more investors understand about how GAAP net income omits valuable information, the better equipped they are to find truly hidden gems, or those companies with growing economic earnings and undervalued stock prices.
Investors are good at picking funds with low costs. They are not good at picking funds with good stocks. Both are required to maximize opportunity for success.
As one financial scandal follows another, it seems the good guys are having a tougher time catching the bad guys. Recent revelations about MF Global’s ponzi scheme are another reminder of how our regulatory and oversight systems seem to let whales pass through their net.