At 82 years old, Martin Whitman is as sharp as ever. Read his shareholder letter: "For buy-and-hold investors (and control persons), the GAAP factor of paramount importance is what the numbers mean, rather than what the numbers are...."
Here there is rarely a Primacy of the Income Account, i.e., emphasis on EPS. Rather, there is a balanced approach where each element of the accounting cycle – balance sheet, income account, cash reconciliation – is weighted by the user of the financial information. In some cases, there might be a Primacy of the Income Account (e.g., strict going concerns); in some cases there might be a Primacy of NAV (e.g., investment companies); while in most cases there is a Primacy of a Balanced Approach (e.g., everything in the accounting cycle becomes useful for an analysis).
It ought to be noted, however, that it is hard for TAVF management to complain about the disclosure system. Over the last 40 years, the Securities and Exchange Commission (“SEC”) has done a magnificent job in improving disclosure for buy-and-hold investors such as TAVF. Disclosure has never been better for the Fund. One of TAVF’s best tools for appraising management is examining the GAAP choices they opt to make when given a choice, e.g., in Exploration and Producing oil companies (“E&P”), compare the choice between successful efforts accounting and full cost accounting. E&P managements’ choices tell TAVF management a lot about how conservative or “For buy-and-hold investors (and control persons), the GAAP factor of paramount importance is what the numbers mean, rather than what the numbers are.”
Read the complete report
Here there is rarely a Primacy of the Income Account, i.e., emphasis on EPS. Rather, there is a balanced approach where each element of the accounting cycle – balance sheet, income account, cash reconciliation – is weighted by the user of the financial information. In some cases, there might be a Primacy of the Income Account (e.g., strict going concerns); in some cases there might be a Primacy of NAV (e.g., investment companies); while in most cases there is a Primacy of a Balanced Approach (e.g., everything in the accounting cycle becomes useful for an analysis).
It ought to be noted, however, that it is hard for TAVF management to complain about the disclosure system. Over the last 40 years, the Securities and Exchange Commission (“SEC”) has done a magnificent job in improving disclosure for buy-and-hold investors such as TAVF. Disclosure has never been better for the Fund. One of TAVF’s best tools for appraising management is examining the GAAP choices they opt to make when given a choice, e.g., in Exploration and Producing oil companies (“E&P”), compare the choice between successful efforts accounting and full cost accounting. E&P managements’ choices tell TAVF management a lot about how conservative or “For buy-and-hold investors (and control persons), the GAAP factor of paramount importance is what the numbers mean, rather than what the numbers are.”
Read the complete report
