Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (16695)	3/28/2003 11:29:51 PM
From: James Clarke	Read Replies (1) \| Respond to of 78625

Bob does it through the balance sheet. Jurgis and I did it through the cash flow statement, but those two analyses are mirror images of each other and get to the same items. I like Bob's term "potential slush bucket" - I hadn't thought of it that way, but thats exactly what these turned out to be. Bob's deferred tax observation is one I missed - thats a great point. Add to that the accounting for the minority interests on the cash flow statement - study that carefully - you'll see it occasionally and it fools a lot of value investors who think they are being disciplined in looking at free cash flow instead of EBITDA or earnings. It is impossible to detect in screens or ratios - you have to scrutinize the cash flow statement very carefully to spot this little trick. Of course this is Monday morning quarterbacking. The point of this exercise is the same reason we investigate airplane crashes. Obviously the reason we're investigating that particular plane is that it crashed. The goal is to learn something from it to avoid future crashes. Whether or not one owned HRC, analyzing it in hindsight is a great way of honing our skills at recognizing value traps. Hope you got as much out of this review as I did. The real Monday morning quarterbacking is when a company like this tells you with the stock trading at 10 cents not to rely on past financial statements. How ironic is that after reading Bob's analysis?