The Impact of Declining Valuations

The 2018 Q4 letter discusses the fallout that can occur when there is a “divergence” between the price and value of a company’s shares resulting from investors losing sight of a company’s fundamentals or becoming fearful about “how some macro event will impact the world economy.” “At the end of 2018,” the letter states, “we believe both of these causes have been at play,” asserting that investor attention has been focused on “trade negotiations,… Read More

How Companies Fool Investors with Profits Fad

Companies may be worth less than investors think, writes columnist Jason Zweig in a recent Wall Street Journal article. Zweig explains that investors look to earnings-per-share to assess corporate profits and that, over the past twenty years, companies have devised “newfangled” measures of such as Ebitda—earnings before interest and taxes, depreciation and amortization. He argues that this modified measure of cash flow can be misleading. “This charade,” says Zweig, “is meant to flatter profit by… Read More