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9 of 9 people found the following review helpful
5.0 out of 5 stars Win by not losing
In the opening lines of What's Behind the Numbers?, co-authors John Del Vecchio and Tom Jacobs offer to "help you find where the investing bodies are buried so you don't join them." These are appropriate words to begin a book on the detective work of finding financial chicanery.

Numbers covers the art of short selling--a lonely endeavor that requires thick...
Published 17 months ago by Charles Lewis Sizemore, CFA

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11 of 13 people found the following review helpful
2.0 out of 5 stars Not impressed, certainly no 5* material
I bought this book after reading the 5* reviews here on Amazon and after reading the first (introduction) chapter of the book. There are not that many books out there on using fundamental anaylysis to base your trades on. There are the classical works from Benjamin Graham and some more popular works like Phil Town's book. This book doesn't reach the quality of those two...
Published 17 months ago by Straddle1985


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9 of 9 people found the following review helpful
5.0 out of 5 stars Win by not losing, February 9, 2013
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
In the opening lines of What's Behind the Numbers?, co-authors John Del Vecchio and Tom Jacobs offer to "help you find where the investing bodies are buried so you don't join them." These are appropriate words to begin a book on the detective work of finding financial chicanery.

Numbers covers the art of short selling--a lonely endeavor that requires thick skin. By definition, you aim to win when others lose. This means that when you're right, you're hated; and when you're wrong, you are shown no sympathy. In Del Veccio and Jacobs' words, short selling is considered "un-American at best and criminally manipulative at worst."

Moreover, shorting stocks requires taking an unsentimental approach to investing and--perhaps most importantly--keeping the ego in check. Very few investors have the disposition to be successful short sellers; John Del Vecchio is one of them.

Del Vecchio is the co-manager of the Active Bear ETF and the creator of the Del Vecchio Earnings Quality Index that drives the Forensic Accounting ETF. Tom Jacobs is the portfolio manager of Motley Fool Special Ops and a specialist in small-cap value opportunities. In Numbers, Del Vecchio and Jacobs reveal some of the tricks of their trade and expose some of the myths that tend to get novice short sellers in trouble.

To start, overvaluation is not a sufficient reason to initiate a short position. A stock that is irrationally expensive can always get more expensive. Likewise, while it is tempting to short a fad stock--think of Crocs, the maker of colorful rubber clog shoes--fad stocks can stay trendy for longer than you think. The same is true of questionable business models--think Netflix.

And what about the stocks of companies engaging in fraud? Well, maybe. But good luck finding them ahead of time. Remember, if management is engaged in something illegal, they're not likely to mention it in the footnotes of their financial statements.

What is missing in each of these cases is the catalyst. What is the sign that the jig is up--and that the stock is due for a tumble?

Some traders rely on contrarian indicators, gauges of investor sentiment towards a stock, or simply the feeling in their gut. But Del Vecchio and Jacobs take a more rigorous approach.

The key is aggressive accounting and specifically aggressive revenue recognition and inventory management: "The time to sell or short is not when you think a business model can't survive. The time is when the numbers suggest that management is covering up poor performance."

And how might you know when this is the case? Del Vecchio and Jacobs spend most of the book telling you, but I'll give two examples that I found to be particularly insightful.

The first is a metric called Days Sales Outstanding (DSO), which measures accounts receivable in proportion to sales. An unusual increase in DSO can mean that future sales and being pulled forward by looser payment terms or special financing.

This hurts future profitability in two ways. The most obvious is that sales that might have happened in the following quarter have now already happened. But worse, those sales might have come with more favorable pricing had the company not been in such a hurry to book revenues. In order to keep Wall Street happy for another quarter, management makes the eventual day of reckoning worse.

A second, similar metric is Days Sales in Inventory (DSI), which measures inventory build-up. You don't need to be a CPA to see why this metric is important. Inventory build-up suggests that the company's products are not selling as briskly as forecast. It also means that discounts will probably be needed move the merchandise, which will lower profit margins.

All inventory is not equal, of course. A build-up of raw materials inventory may mean that demand is stronger than ever. It is the build-up of finished goods that should be a major red flag.

What's Behind the Numbers? is full of little tricks like these, explained in simple terms that non-CPAs can understand. Before you attempt to short another stock, read and re-read this book, particularly the chapters on aggressive revenue recognition and aggressive inventory management.

I'll leave you with two final nuggets of wisdom from Del Vecchio and Jacobs.

First, don't be too eager to jump into a short position. As the authors point out, "You make as much money shorting a stock that falls from $70 to $5 (93 percent) as one that falls from $100 to $5 (95 percent)." Getting into a trade too early will turn a would-be profitable short into a frustrating loss.

Second, watch out for crowded trades. Don't short a stock if the short interest is too high as a percentage of the float. This puts you at risk of being short-squeezed as your fellow sellers all scramble to buy at the same time and send the share price to the moon.

If you are a serious investor, pick up a copy of What's Behind the Numbers? and keep it close at hand. More than anything else, it will help you to win by not losing.
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11 of 13 people found the following review helpful
2.0 out of 5 stars Not impressed, certainly no 5* material, February 15, 2013
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
I bought this book after reading the 5* reviews here on Amazon and after reading the first (introduction) chapter of the book. There are not that many books out there on using fundamental anaylysis to base your trades on. There are the classical works from Benjamin Graham and some more popular works like Phil Town's book. This book doesn't reach the quality of those two books. The parts on fundamental analysis are not that elaborated, and these authors go look in places I wouldn't use immediatly to base my trading decisions on.

Some parts are kind of good, like using the DSO and DSI numbers and monitoring their change. What I didn't like though on these chapters are the links to a stock graph. Several times the autors point out a fundamental change in the inventories or the cashflow and two pages later you'll see a stock immediatly rising or declining as if it was a direct consequence of the change these autors write about. They can't possibly know if the stock movement was due to the fundamentals or just random noise or some macro economic event.

For the chapters on fundamentals I could still give a 3*, but the later chapters on technical analysis and stock charts are way to basic. It they'd just let these chapters out the book would have been better. It's just a series of stock charts (from investors.com and CANSLIM related websites) with basic TA stuff (determine the trend by looking at the chart, 50 day moving averages, ...).

Two stars is my total score for this book.
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5 of 5 people found the following review helpful
5.0 out of 5 stars Forensic Accounting and More, November 19, 2012
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This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
The first thing I want to tell readers is that I really enjoyed the material in this book. It's well written and it's a book that both "professional" investors and those who do their own investment work will find insightful.

I'm always interested in learning more about forensic accounting techniques and when I saw this book on Amazon I was immediately interested. I recognized one of authors of the book right away as I had followed Mr. Jacobs career for many years dating back to his Motley Fool days. I was also intrigued when I read that Mr. Vecchio had worked for David Tice AND Dr. Howard Schilit, both legends in the forensic accounting field.

For those that haven't read the book yet it certainly covers forensic accounting, and does so using real examples in an easy to understand format, but it also contains much more. So just what is the thesis of the book? They explain it on page 19:

"With the tools in this book, investors will increase their chances of achieving high real returns by weeding out or avoiding the stocks that perform so poorly that they will ruin overall returns and possibly destroy capital permanently."

To reach this goal they advocate using an investment approach that combines a small-cap value strategy (while also participating in select special situations) with a short component.
I found their short thinking quite interesting as they state not to short companies "...based on overvaluation, fads, frauds, or poor business models" which is what I would have considered to be perfect short candidates. They instead advocate waiting until the aggressive accounting methods discussed in the book are used by companies, i.e. "wait until there are negative catalysts for profits in the near future - a year or two at most, the rough time period that the value-with-catalyst investor seeks."

To summarize I found the book filled with great forensic accounting information while also detailing an effective investing methodology. As they mention in the book even if you don't short stocks yourself "...the short-selling expert's tools - and the shorting mindset - can lead to successful investing, simply by avoiding the statistical basement revealed by the data."
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9 of 11 people found the following review helpful
5.0 out of 5 stars A must-read for any serious investor, October 13, 2012
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
If you are passionate about investing, this book is a must-read. John and Tom explore many important -- yet frequently overlooked or misunderstood -- topics such as earnings quality, deep value investing, short-selling, long/short portfolio construction, and technical analysis. These are not topics commonly found in today's investing books and they're certainly not all discussed in one place, so this is a book to keep alongside your other favorite investing books as you'll likely reference it often.

This is not beginner material and requires the reader to have a basic understanding of investing and financial statement analysis, but John and Tom are both excellent writers who thoroughly explain these higher-level topics in a down-to-earth and easy-to-understand fashion.

Whether or not you fully adopt John and Tom's approach to investing, you'll put down the book a more complete investor. A long-only buy-and-hold investor, for example, will still appreciate the earnings quality sections that can help detect aggressive accounting practices that distort "true" earnings and signal trouble ahead. The chapters on reading charts and market timing -- topics that fundamentals-focused investors often scoff at -- are compelling and may convince even the staunchest buy-and-hold investor to consider the use of moving averages and relative-strength indicators to help make better entry point decisions.

Such well-written yet challenging investing books like this don't come around often. Do yourself a favor and add this one to your collection.

(In full disclosure, John and Tom are former colleagues.)
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6 of 7 people found the following review helpful
5.0 out of 5 stars When 'Behind' Should Be 'In Front' For Investors, October 17, 2012
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
Long-only investors will benefit greatly from the book's insights and especially how to get out of their losers quickly by following a few simple fundamentals on the balance sheet and income statement. In my opinion, this is a must-read for investors who have trouble letting go of failed investments and who have come to understand the hard way that "time does NOT heal all wounds." Cisco investors holla!

The authors spend their days more like forensic accountants looking for the chicanery (that is a lot more prevalent that you may care to believe). I found the authors' research head-shaking in that regard. There are far too many accounting tricks that publicly traded companies use in order to make their quarterly numbers. And sooner or later that catches up with them.

One company he writes about has recently offered big discounts to generate revenue for the near quarter, but that's 'robbing Peter to pay Paul' according to the authors. As they state, "eventually there will be an earnings shortfall, like there always is with companies like this, and the stock will tank."

By understanding the tactics, you the investor will have side-stepped such a debacle and you will have done the first thing you need to do in any investment process: preserve your equity.
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3 of 3 people found the following review helpful
5.0 out of 5 stars Very useful book, November 26, 2012
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This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
This book does a great job of exposing very subtle methods that companies employ to manipulate the earnings, inventory, cash flow and revenue numbers. What struck me most was how many inventive ways companies have concocted to keep up appearances, particularly surrounding revenue. The authors very effectively dispel the myth that top line is hardest to fudge. They also do a nice job of keeping the material balanced, so you don't need to be a CPA to comprehend it, nor does it get so trivial to render the information useless ; a common complaint I've had with other stock market investing books. Further, the technical analysis section provides an unemotional look at market trends, and gives some extremely simple indicators to assist in the decision to exit stocks and head for cash or bonds. Again, the authors don't overdo it , they've achieved a happy medium of keeping the material useful, uncomplicated, yet interesting. In conclusion, I'd recommend this book for those who have the inclination to spend a little time understanding what they own and when to own it, as I believe adopters of the book's philosophies will reap large benefits over a lifetime of investing.
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3 of 3 people found the following review helpful
5.0 out of 5 stars Unique in Investment Books, October 16, 2012
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This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
What's Behind the Numbers is distinctly different from all other investment books that I have ever read. That's not an overstatement. Few practitioners are willing to discuss the subject of earnings quality and short-selling which is why this book should be considered one of the most significant investment-related books written within the last five years. In my experience, most books try to explain what to buy. What I think makes this book unique, is it teaches the reader in easy-to-follow examples what to avoid which is usually ignored by authors, but to me, is equally important. To date, this is the most complete book on earnings quality and short-selling.
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5 of 6 people found the following review helpful
5.0 out of 5 stars Best Investment Book of the Year, October 23, 2012
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
[From page 114 of the Stock Trader's Almanac 2013]

As we prepared for our annual Best Six Months Sell Signal back in March 2012 we began informing readers that we would be recommending the AdvisorShares Active Bear ETF (HDGE) exchange traded fund for our defensive play this year in addition to the bond ETFs. HDGE produced better results in down markets than the mutual funds we had recommended in previous years, and now that it had been trading for more than a year with healthy volume we were comfortable using it as our Worst Six Months timing vehicle. Being an ETF, fees are much lower than the mutual funds and you can trade in and out of it intraday like any stock. It was a no brainer.

We began revealing our bearish outlook in April 2012 and our downside protection picks for the Worst Six Months. We spoke frequently about HDGE and added it to the Almanac Investor ETF Portfolio on April 3 at 20.63 on our Sell Signal. [Full Disclosure: At the time I posted this review on Amazon I held a position in HDGE.]

Our coverage of HDGE initiated a dialogue with the portfolio managers. They of course were pleased we were recommending their ETF and wanted us to be fully aware of the fund's inner workings and holdings.

Then Mr. Del Vecchio sent us a review copy of his upcoming book. Once we began to pour through it we knew this had to be our 2013 Best Investment Book of the Year. In a witty, pithy, and easy-to-read style Del Vecchio and co-author Tom Jacobs show you how to uncover What's Behind the Numbers. Under their tutelage forensic accounting is reduced to Math 101. You will learn how to employ the metrics they use to expose financial chicanery in companies and unearth the best short sales and to protect yourself from owning those stocks most likely to blow up and wreak havoc on your portfolio.

We have long believed that the price-to-sales ratio was the best metric for stock valuation as revenue is much harder to manipulate than earnings. This concept was made famous by renowned money manager Ken Fisher in the 1980s and affirmed by James P. O'Shaughnessy in his landmark book, What Works on Wall Street. But as companies and their managers have come increasingly under pressure to meet and exceed expectations they have developed ever-better ways to manipulate revenue as well as earnings. Del Vecchio and Jacobs teach us how to better value stocks by understanding and recognizing aggressive revenue recognition, excessive accounts receivable, and the power of earnings quality. Read What's Behind the Numbers so you can keep your portfolio clear of ticking stock bombs.
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2 of 2 people found the following review helpful
5.0 out of 5 stars Great Book! But probably not best title..., February 21, 2014
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This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
When a friend suggested I read “What’s Behind the Numbers” I quietly made a point to avoid it all costs. I love thinking and philosophizing about markets, but a book about numbers is the last way I’d like to approach the subject, not to mention about the most sleep inducing.
Fortunately, “What’s Behind the Numbers” is as good as it is mis-titled. This is not a technical trading book and it's not even that esoteric. It's certainly not dry. Who knows what makes a book sell, but more accurate titles might have been “How To Analyze the Way Others Want You To Think” or “What You Want To Believe Versus What’s True”. The title, "What's Behind the Numbers" gave me a misguided first impression.
This book would be a worthy introduction to how stock markets really work for those of you interested on an intellectual level. For those reading the book as a learning tool for money management (probably most of the audience) I’d say “What’s Behind the Numbers” offers as good an explanation to value investing in the old school Buffet way as you’re going to get. Don’t “blow up” by buying overpriced and overhyped stocks and your returns will take care of themselves. When a company is trying hide its true status like the Great and Powerful Oz with all his pageantry, that’s the time to pull the curtain back and look for a possible short. Value investing is by no means the only way to manage your money in the stock market, but as the book rigorously defends in its early chapters, this strategy has proven to be among the most solid through the years.
Yes, the book does look at and teach numbers - after all, numbers are the tool for measuring the market, not just for technical traders but for old school fundamentals traders too. But the insight of “What’s Behind the Numbers” is that it shows not just what accounting numbers mean on their face (though this is important), but that these numbers are inseparable from the motivations and propaganda techniques of the companies who generate them. How valuable is a projected EPS for four years in the future? And why would such an estimate even be employed. Why would a company process and account tomorrow’s sales today? Yes, sales numbers are very important but so are the numbers of things not sold - otherwise known as inventory. When it comes to the stock market lying is not allowed. But, as “What’s Behind the Numbers” points out, kinda sorta lying is.
From an almost philosophical standpoint I greatly appreciate how thoroughly and unflinchingly the book acknowledges market risk. As an example, you will frequently hear about a fund’s amazing track record or its alluring return since inception. But, this statistic obfuscates the enormous fluctuations a fund may journey through to get to that number. And probably more importantly, certainly more humanly, the book reminds you of the toll of stress and fear that accompanies these fluctuations and its inevitable result - you will take your money out of the fund. (The book cites the CGM Focus Fund, run by Ken Heebner and, if my memory serves, almost nobody stayed in that fund from its inception to last year when “What’s Behind the Numbers” was published. The fund showed great numbers but it was more suited to robots than humans.)
Another water cooler statistic the book cites that frequently gets our blood flowing but can easily lead to heartbreak upon personal application is the S&P itself (or any major index for that matter). A huge increase in the S&P over a course of years sounds very tempting indeed, but this gain in the S&P far from guarantees that the stock you would have bought would have gone up in that time (some statistics say it probably would not have), that you wouldn’t have sold early to realize a profit, or that you wouldn’t have shrewdly played the contrarian and shorted when prices got too high - only to seem them get higher.
Value investing is a market strategy that effectively measures and deals with risk. That’s sounds simple enough, but there are several steps beyond this that I was happy to see addressed in “What’s Behind the Numbers”.
First, how are these numbers really generated? What laws, what accounting techniques, which market forces all set the parameters for what the numbers can amount to. And second, what do the people behind the numbers (and, again, the numbers are the alleged measurement of risk) really want you to believe ? (Hint: it’s not the long term. And frequently it’s not even the truth).
If all of this seems esoteric than perhaps you will appreciate the book’s title, “What’s Behind the Numbers” a bit more than I do. However, for myself, that’s just the point. I consider the manipulation of believe to be such an elemental aspect of all markets that I see this book as covering essential and basic territory! The fact that this territory is left out of many market “How To” books is to their detriment. “What’s Behind the Numbers” should be among your first market reeds. This is both a basic and advanced book, but my enthusiasm for it comes from the fact that it is an insightful and clear book - not just about numbers, but about how and why people use numbers to influence our market choices.
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4 of 5 people found the following review helpful
5.0 out of 5 stars a must read for anyone considering investing long or short, November 28, 2012
This review is from: What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio (Hardcover)
John and Tom do a fantastic job in conveying the knowledge and principles required to really uncover the truths about company reporting from a forensic accounting methodology. The principles are straightforward and stated in a clear and concise path to understanding. Add this knowledge to the discipline required of any serious investor and you have a great tool for uncovering companies that are in fact performing to how they are reporting (go long) or companies that are F.O.S (go short). John and Tom's decades on the street offer a very valuable perspective on the other side of the trade that are not often available to market participants. This book will not make you a billionaire (perhaps it may?) but it will certainly provide readers with a significant edge over other investors without this knowledge of analytical methodology. A must read for anyone in the financial markets.
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What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio
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