read of the reported financials, he found, “Their expansion would actually cost a lot less than people thought. And the earnings that they generated ended up being a lot more than people thought.” The stock went up several hundred percent. And best of all for Valens and its clients and friends, everyone else had been looking the other way. It was an unloved company – its growth invisible absent an excruciatingly close read – and a radical idea. Making the case for these calls sounds almost farcical the way Litman recounts it. He’s a kind of anti-Cassandra, saying, “It’s actually a great company: You’ve just got to look at Note 19 on page 78, then you’ve got to look at Note 25 on page 140 – and if you’re not looking at that detailed level, you’re not going to see the true numbers.” The initial idea to right the wrongs baked
into the accounting rules was planted at the very beginning of Litman’s career. As a fledgling accountant, he (in his own words) “lucked into a job” working for the authors of the official guide to the generally accepted accounting practices (“GAAP”). In his early 20s, he developed an appreciation for the rules’ circumstantial flaws – and an unusually sophisticated sensitivity to the institutional biases that held the status quo in place. He might have hardened into a cynic, but a teacherly temperament and innate interest in the deeper reasons why the world works the way it does kept him curious about what he might do differently. He recalls running up to his bosses with questions about the rules – “Why is a statement of cash flows not a statement of cash flows? There are a bunch of non-cash items. Why?” – questions for which there are no reasonable answers.
36
September 2019
Made with FlippingBook - professional solution for displaying marketing and sales documents online