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Misinterpretations; Perspective on Life: Best of Kass

Stocks in this article: IBM

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about what's really behind the numbers and missing the rally.

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Misinterpretations
Originally published on Friday, July 19 at 1:51 p.m. EDT.

"You can fool most of the people all the time on Wall Street." -- Bill King, The King Report

It is remarkable to me how misinterpreted some earnings reports are by the business media and other observers.

Case in point is IBM (IBM), which I have shorted.

IBM's top-line growth has been horrible for years.

This data is taken directly from IBM's own earnings report on its website. (Hat tip Bill King of The King Report)

First, the headline, then the key numbers:

IBM REPORTS 2013 SECOND-QUARTER RESULTS

EXCLUDING $1 BILLION SECOND-QUARTER WORKFORCE REBALANCING CHARGE

GAAP results

  • Diluted EPS: $2.91, down 13%
  • Net income: $3.2 billion, down 17%

Pretax income decreased 20% to $4.1 billion and pretax margin of 16.6% was down 3.4 points compared with the prior-year period.

Later on, the company discloses that free cash flow was $2.7 billion, down about $1.0 billion from the prior year excluding Global Financing receivables.


The reported tax rate dropped year on year, assisting EPS -- but the company would never, ever call the increased earnings resulting from that a "one-time" gain that should be excluded from earnings. But to be consistent, it should do exactly that ...

At the time of original publication, Kass was short IBM.


I Am Mad at Myself
Originally published on Thursday, July 18 at 1:20 p.m. EDT.

I wrote this earlier:

"Don't give up, don't ever give up. There were some very emotional moments last night in the ESPY awards program. The show truly had some shining moments. Particularly poignant was the story about the Hoyt family, as well as Robin Roberts' journey."

I am pissed off at myself for missing the rally in the stock market over the last few months.


And I am mad at myself for disappointing a number of subscribers as my strategy has been poor.

I have been in the growth-slowing camp (which occurred) but it coincided with the valuations-growing camp (something I didn't expect). I was of the wrong-footed view that a policy dependent domestic economy deserved lower price-to-earnings multiples.

But it is very important to compartmentalize one's emotions by detaching yourself somewhat from your mistakes, taking a deep breath and by recognizing the game is long.

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