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Consilient Observer
July 20, 2022

Good Losses, Bad Losses

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July 20, 2022

Good Losses, Bad Losses

Consilient Observer

Good Losses, Bad Losses

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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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