la trascrizione di un'intervista a Mauboussin:
Transcript: Michael Mauboussin - The Big Picture
un passaggio su quanto possono essere fuorvianti i bilanci:
MAUBOUSSIN: … I think the one that — I mean, accounting changes, but I think the really big one is this rise of intangibles that you pointed out. And just to give — well, first of all, let’s go back a little bit even further in history. Back in the 1970s, tangible investments, so tangible, physical things …
RITHOLTZ: Think factories.
MAUBOUSSIN: … big factories and (inaudible) …
RITHOLTZ: (Inaudible).
MAUBOUSSIN: … machines …
RITHOLTZ: Right.
MAUBOUSSIN: … drills, all that, right? Those were twice the level of intangible investments, and intangible, by definition, nonphysical. So, think now branding or …
RITHOLTZ: Patents, copyrights, software.
MAUBOUSSIN: … yeah, software code, all this kind of – OK, right. So, two to one, tangible to intangible.
At the time we wrote the book, so-called 2001, 20 years ago, they were – the first version of the book, they were at parity. And our — our estimate is, for 2021, that intangibles will be more than two times tangible. So, in the last 20 years alone, they – you could sort of say they started the race basically neck and neck, and now it’s much, much more intangible. So why — why is that important, like why do we care about that?
That’s important because tangible assets, the way the accounts record them, is they’re capitalized on the balance sheet, right? It’s a — it’s property, plant and equipment, which we then depreciate over time. So, it does show up in the income statement, but primarily in the form of depreciation.
By contrast, intangible investments are fully expensed. Now the most famous of these is research and development, and we’ve known that. And since the 1970s, the FASB decided that — that R&D should be expensed. And there’s debate about — there’s been debate about that for a very long time. But now, R&D is only a quarter of total intangible investment, so there’s lots of other stuff that’s going on that’s all expense. So, what does that mean all things being equal? The answer is earnings are a lot lower than they would otherwise be.
I always like to point out that, you know, great companies like Wal-Mart, great companies like Home Depot, for the first 10 or 15 years they are public, had negative free cash flow, right, which their investments were bigger than their earnings, so they had positive earnings. Was that a problem? No, it’s fantastic, right, because their investments had very high returns on — on capital.
And so, — and, by the way, Walmart, for example, its first 15 years, tripled the performance at the stock market, right? It crushed it. And when you do the — that’s a substantial compounding advantage, right? But the problem is now, we’re — we’re — we’re conflating investments and expenses on the income statement, and we don’t see that we can’t unpack those things.
RITHOLTZ: And just to — just to jump in. Places like Wal-Mart and — and Home Depot, and those — they’re buying land, they’re putting up new stores, they’re expanding, so that sort of tangibles does show up on the balance sheet.
MAUBOUSSIN: That’s right, that’s the whole point. So, they’re — they’re — and, by the way, even Wal-Mart — Wal-Mart, for sure, was an early user of technology, right? If you read Sam Walton’s book, which by — everybody should. It’s fantastic. I reread that memoir just last year. It’s just awesome.
You know, they were early users of technology, so they were early intangible users. So, well, but you’re exactly right, the vast majority of their investments were physical. You can — you can kick it, and so on and so forth, whereas other — other companies, that is not the case. So yes, so that, to me, is a — that’s a watershed change, and that’s why earnings.
Again, if you’re focusing on cash flow, these things become much less important because we’re getting to the ultimate rude answer. But if you’re simply using multiples or some sort of shorthand, you’re going to dismiss this very significant development.
RITHOLTZ: So — so people love to point out how expensive the stock market is and how pricey, that we used to call them FANG, but now with Facebook, I don’t know what that look anymore. But if we look at the top 10 or 20 technology companies or — or the top 25 percent of the S&P 500 by market cap, those appear to be pricey, but these are all companies that have massive investments in intangibles. So, it’s Google, it’s Apple, it’s Netflix, it’s Microsoft, it’s Facebook. Go down the list. It’s Nvidia.
All these companies are – they own software, they own patents, they own processes. Does this imply that these pricey technology companies — I left out Tesla from the list — are — these so-called pricey tech companies that have so much sunk into intangibles, are these perhaps less pricey than the average stock analyst believes?
MAUBOUSSIN: If you’re using traditional multiples, you get a very different picture. And, you know, we recently wrote a report called — it’s called Classifying for Clarity where we talked about — argue — we argue that certain things should be restated in the statement of cash flows. And we use our case study, Amazon.com, right, so one of these companies. And Amazon backed our calculation or our estimate. Is it Amazon’s intangible investments in 2020 were $44 billion?
RITHOLTZ: Astonishing.
MAUBOUSSIN: And you — their — if you amortize, if you’ll be able to schedule and amortize it, it still comes out to $19 billion of net profit increase. Now, Amazon’s profits last year were about $20 billion. So — so just if you accept this adjustment …
RITHOLTZ: Double the profit.
MAUBOUSSIN: Right? Now, if — you know, you — we could quibble about the details of it …
RITHOLTZ: Right.
MAUBOUSSIN: … and so on and so forth, but basically, that is it. You know, that’s exactly right. And the EBITDA numbers don’t quite double, but they close to double. And so, now the flipside of all that, that’s, you know, the earnings are better, but let’s also recognize the investments are a lot higher than what is reported to. And so, I always say the job of an investor is to understand the magnitude of investment and the return on investments to understand future profits.
And so, for a company like Amazon, they’re earning a lot more than people at least what they would seem to report, but they’re also investing a lot more. And so, you know, there’s still lots of judgment as to whether those investments will pay off, and so on so forth, but you’re exactly right. It’s a very distorted picture, you know, without commentary.