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Traditional metrics like P/E and P/B are effectively broken


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Or so says the below article

 

https://www.bloomberg.com/news/articles/2018-06-06/what-s-a-stock-worth-in-new-economy-accounting-has-its-critics

 

 

Essentially the argument is for the capitalization of intangibles such as R&D expenses.

 

This is silliness in my opinion. Whether you capitalize or expense these investments, the only difference it makes it to book value. It doesn't change the revenues and cash/owner's earnings of the company.

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Guest jeffswaldron

This is wonderful news and I hope it spreads -- this should create some market inefficiency.

 

On a side note, I really enjoyed the book Accounting for Value by Stephen H. Penman.  Others may disagree, but I think it does a great job offering a new way to value a company and explaining how to think about book value.

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