by Scott Martindale
  President & CEO, Sabrient Systems LLC

With stocks holding up near their all-time highs in the face of a towering Wall of Worry, it is apparent that investors have been reluctant to sell for fear of missing out (FOMO) on continued upside.

However, at the same time, there has been something of a lid on further upside as valuations are at lofty levels, with the S&P 500 and Nasdaq 100 at forward P/Es of 22.4x and 27.0x, respectively, while the 10-year yield has been on the rise (recently eclipsing 4.30%), which tends to hold down valuation multiples. Indeed, many of the most prominent investors are wary, including the likes of Warren Buffett, Jamie Dimon, and Jeff Bezos, while corporate insider buying has slowed.

So, bulls and bears appear to be at a standoff, perhaps awaiting a catalyst from earnings season and the election outcome. And depending on how things transpire, markets are likely to experience some volatility (like today!). I have been anticipating a market pullback followed by higher prices by year end and well into 2025, buoyed by the combination of a dovish Fed and rising global liquidity—and potentially from reduced taxes and red tape in the New Year. In any case, any surprise that leads to a selloff—other than a cataclysmic “Black Swan” event—would likely be a buying opportunity, in my view.

But with the momentous election just a few days away (I can’t wait for it to be over!), I thought it might be a good time to share some timeless market wisdom, insights, and levity by compiling a list of 55 investing proverbs to live by. The first several have no particular author that I can discern, but for the rest I show a byline. Here we go:  Click HERE to continue reading

  by Ryan Frederick
  Equity Analyst, Gradient Analytics LLC (a Sabrient Systems company)

In 2003, the SEC first officially adopted rules (following Sarbanes-Oxley in 2002) related to the reporting of non-GAAP financial metrics. The new regulations called for a reconciliation of GAAP versus non-GAAP results to be included in various investor resources and to refrain from excluding non-recurring items from non-GAAP metrics if they are reasonably likely to reoccur, which is subject to wide interpretation. Since then, it seems the perceived importance among investors of non-GAAP financial performance has been elevated above traditional GAAP measures. Between 2015 and 2017, less than 10.0% of companies in the S&P 500 did not report a non-GAAP income calculation. However, the ability for management to subjectively decide what is or is not relevant to a company’s core business leaves plenty of room for earnings manipulation.

On the one hand, companies tend to justify their exclusion of various transactions as necessary for “comparability” to historical results, given that GAAP rules have changed over time. Fair enough. However, when an investor chooses to rely upon non-GAAP results when comparing a given company’s results to another’s, the comparisons can be deeply misleading as management has great leeway for subjective (and sometimes ad-hoc) adjustments in their exclusions – i.e., what one company concludes should be excluded in a non-GAAP calculation may not be consistent with what another company may exclude.

In fact, in 2010 former SEC chief accountant Howard Scheck identified non-GAAP performance metrics as a “fraud risk factor.” The SEC even created a taskforce to analyze non-GAAP earnings metrics that could be misleading. Then, in an effort to provide more clarity, the commission provided Compliance and Disclosure Interpretations (C&DIs) which detailed ways in which the SEC may find non-GAAP disclosures to be misleading, but more on that later.

Here at Gradient Analytics, our focus on earnings quality analysis (for both short idea generation and vetting of long candidates) regularly includes an examination of non-GAAP adjustments to determine whether they are appropriate in helping represent the true performance of the firm, or whether they are misleading. There is a plethora of unique adjustments a company could make to a non-GAAP income calculation; however, some are more common than others. One of the more frequent adjustments to GAAP income is the exclusion of restructuring costs. Read on….