This year, in one sentence, he takes on one of the biggest diversion tactics of all -- one promulgated by many companies as the way they should be viewed and then gullibly accepted by investors: EBITDA or earnings before interest, taxes, depreciation and amortization.
"When Wall Streeters tout EBITDA as a valuation guide, button your wallet," he wrote.
Here's the windup to that comment (emphasis added by me):
I won't explain all of the adjustments - some are tiny and arcane - but serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others in no way lose value. With software, for example, amortization charges are very real expenses.
Charges against other intangibles such as the amortization of customer relationships, however, arise through purchase-accounting rules and are clearly not real costs. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenseswhen earnings are calculated -- even though from an investor's viewpoint they could not be more different.
In the GAAP-compliant figures we show on page 29, amortization charges of $648 million for the companies included in this section are deducted as expenses. We would call about 20% of these "real," the rest not.
This difference has become significant because of the many acquisitions we have made. It will almost certainly rise further as we acquire more companies.