Consilient Observer

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July 20, 2022

Good Losses, Bad Losses

July 20, 2022

Good Losses, Bad Losses

Consilient Observer

Good Losses, Bad Losses

July 20, 2022

All Losses Are Not Created Equal

Accounting is the language of business and certain principles, including conservatism, guide how accountants reflect the range of business activities on financial statements.
Investors must look past simple measures of profits to understand a business’s true ability to create value.
The rise of intangibles means more investments than ever are expensed immediately versus capitalized, which makes the financial statements of today appear distorted relative to those of the past.
Academics distinguish between GAAP losers, companies that have losses but a high return on investment, and real losers, or those that have expenses unrelated to investment that exceed sales.
Evidence from recent decades shows that GAAP losers produced attractive total shareholder returns relative to the real losers and profitable companies.

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Good Losses, Bad Losses