My favorite parts of Berkshire Hathaway letters are when they spend several paragraphs complaining about GAAP
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Not Wall Street; the SEC and the FASB. GAAP is very imperfect, but still very useful. It also cuts both ways; some companies use alternative measures to better showcase the reality of their business, while some companies use alt-measures to distract from reality.
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If you think this is bad, just wait until ASC606 goes into full effect Q1 2018. I’d imagine that’s all tech companies will talk about on the earnings call
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As a former investment Portfolio Manager, I'd say that all metrics and models are flawed; the important thing is to understand how they are flawed and adjust for that.
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this is really interesting, i’m in college taking a finance class rn - can you elaborate on what metrics are not identified by GAAP that successful co’s optimize for + what wall street wrongly optimizes for
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Most mismanaged companies also focus on metrics not identified by GAAP. It's hard to tell in the moment which is which.
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