WHATWALL STREET WON’TTELLYOU
He worked as a consultant and then led a research team at the investment bank Credit Suisse – but he couldn’t forget what he’d learned working with the authors of the rulebook: that while the accounting rules may produce the wrong numbers, the real numbers are out there if you only take the trouble to look for them. Knowing wasn’t enough for Litman... He wanted to spread the word. Valens’ uniform accounting database is essentially a list of companies and their actual values, spanning the 10 years since Litman founded the firm. It’s set up to highlight the reported prices that are most meaningfully different from their actual prices – the “oranges,” per Litman’s favored idiom, among “apples.” Litman’s system labels the misleading reported values in orange. The real, corrected values it casts in blue. Corporate clients can consult the whole color-coded, decade-deep database or go by the reports and case studies Litman’s teams develop. And they’re in good company: Most of the world’s top long-term investors follow "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."
strenuously cleaned-up accounting, rather than relying on publicly reported financials alone. “The entire Wall Street establishment preaches as gospel an earnings number that’s regarded as nonsense by the top investors of the world,” Litman says, sounding a little like Thomas Paine: “Of the top 300 investors on the planet, 180 read uniform accounting research. Earnings aren’t the bottom line.” The morning we met, Litman had been lecturing, via Skype, a business school class at the African Leadership University based in Mauritius. A volunteer engagement, the lecture went well into overtime when students got caught in a fever, yelling out companies – “Facebook!” “Tesla!” “Uber!” “Amazon!” – prompting Litman to recall whether they were accurately valued. Correcting for what the rules misrepresent, Facebook and Amazon are even stronger than they look, while Uber and Tesla are just as weak, if not weaker, than reported. These students were no different, Litman observes, in enthusiasm or expertise – no different from the audiences he addresses at the elite American schools where he lectures throughout the year, or at a recent rave-reviewed engagement at the Harvard Club. His lecture that day was an extended parable about Bruce Lee’s combat philosophy – seriously. “I love the whole Bruce Lee mentality,” he says. “The idea of creating one uniform system of martial arts, the best possible system. That’s what uniform accounting is: Let’s create one set of global accounting standards everybody can understand and get behind.” Elsewhere in sports metaphors, uniform
American Consequences
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