Insights

You may have already guessed it from the helpful illustration, but the unusual threat I am referring to is creative accounting. An opinion piece in the Wall Street Journal recently highlighted accounting practices that create a false sense of security. What I found most relevant to this website is the manner in which states and municipalities record revenue. This sounds terribly boring (I know… it’s why I drew a giant lizard), but it is pretty fascinating to see what local government will sell to stay afloat.

I am consistently impressed by the range of free tools websites are offering to help readers make informed decisions. The New York Times posted a LINK this morning for an online calculator that uses a series of simple inputs to determine the economics of buying vs. renting a home. The user interface is elegant (see photo above) and so inviting you may feel compelled to test it even if you’re already committed to a 30 year mortgage…

JPE.com may be the coolest private equity website I’ve seen. It has one page (excluding Contact), and just lists the professional accomplishments of the man behind the fund: Bradley S. Jacbos. Turns out he has founded or co-founded four companies, all of which became multi-billion dollar entities:

We probably look at 175 – 200 investment opportunities annually (someone actually employs me…). Most of these are brought to us by investment banks, and some come with projections offering a range of outcomes. The best-case projection often looks like a hockey stick: historically flat or with a slight positive trend, but showing explosive growth for the projected period. In stark contrast, the worst-case projection hardly ever shows revenue declining. At worst (according to the materials provided) revenues will remain constant.

Kerrisdale Capital posted an eye-opening piece earlier this year detailing “extremely sloppy” work published by analysts at well-known banks. The focus is on “one of the most basic inputs of equity valuation: the number of fully diluted shares of common stock.”