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Financial Freedom Is Merely Organized Common Sense
Can You Analyze Intentionally Misleading Information?
I usually read the daily email from Joachim Klement. “Klement on Investing,” his daily article, gives me an insight into things that are not easy to acquire by mere surfing. The one from 21 March is such an example. If only we could have known beforehand.
The point of the article is that honesty and deception can be discovered if you know where to look. He finds information on D.A.T.A., a website that analyzes filings and pronouncements by public companies to assess whether they are speaking the truth at a sufficiently high level to make them worthy investments. Once you know a company is telling the truth at a high and consistent level, you can then proceed to analyze what is available.
Their site is Deception and Truth Analysis. They assess a score from +100, the highest truth, to -100, the greatest deception. In Joachim’s article, he address the Silicon Valley Bank’s failure and, using D.A.T.A,.’s assessments, discovers there were clear reasons to avoid the business five quarters before it sank.
Of what value is misleading information?
I have learned that a good assessment of bad data is more damaging than no assessment at all.
You may want to rethink how you assess the information presented by any company in which you might have an investment interest. Are they trying to subtly mislead you? If yes, what would your financial statement analysis tell you?
Your first step should be to assess the likely validity of what you will analyze. That is normally very difficult and we revert to rules of thumb or other metrics. For example, some such heuristics include:
- Are the words challenge or challenging found in the letter to shareholders? If yes, why bother further? You don’t have so much money that you need to invest in companies that have challenges.
- Cash and cash flow numbers tend to be real, all other numbers are opinion. If cash doesn’t work, it is unlikely things will improve by looking at other items.
- If the company is organized in a way that looks simple, the analysis will be hard. If it looks complex, the analysis will be near impossible.
In the long run, you make more money by avoiding mistakes than by choosing investments correctly. Buffett’s first law is never lose money. His second law is, pay attention to law #1.
An analysis is hard enough without the risk of the data being misleading. D.A.T.A might show you important indicators. This is a time to be cautious.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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