121: Red Lines, Accounting Gimmicks and Management Gloss: Why You Need to Understand Balance Sheets to Avoid Portfolio Disasters (With Steve Clapham, Founder of Behind the Balance Sheet)

Money Maze Podcast

Business, Investing, Management, News, Business News

4.8 • 216 Ratings

🗓️ 30 November 2023

⏱️ 39 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

For all the narratives around investing and making money, those who have survived the investment cycles for decades and earned above average returns have typically adhered to sound disciplines.

This means valuing companies correctly, not taking shortcuts, not being swayed by management ebullience, and digging into the financial statements is key to optimising returns.

In this episode, Steve Clapham, veteran analyst, investor and creator of Behind the Balance Sheet explains why effective investment training has diminished, and how reading accounts is more important than ever in an era of waning cheap money.

Steve shares his candid thoughts on the CFA and explains why the cash flow statements are so vital.

He then explains why opportunities on the buy-side are increasingly plentiful, before covering a few case studies of 'creative accounting' (including two recent high profile fraud scandals: Patisserie Valerie and Wirecard).

The Money Maze Podcast is kindly sponsored by Schroders, Bremont Watches, LiveTrade and IFM Investors.

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FURTHER RESOURCES
To help improve your equity analysis and access world-class training videos, consider signing up to Steve’s Analyst Academy Course. As a festive thank you, he’s offering Money Maze Podcast listeners a 10% discount on the acclaimed course. At checkout, add the code ‘MMP10’ to enjoy the Black Friday discount. Learn more and sign up here! (Offer ends on December 15th 2023).

Steve also runs the Behind the Balance Sheet Newsletter. It aims to expose as many people as possible to equity investing, sharing analysis to improve your investing skills, backed by his 25+ year institutional career. Steve is kindly also offering listeners a 30% discount on the newsletter via this link!

Transcript

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0:00.0	The telltale signal in wirecard was very obvious.
0:03.7	It started off, it had a billion euros in cash, and it raised a 500 million euro bond and
0:08.4	a 750 million euro bond.
0:10.3	And when it went bust, it had $3 billion in cash in the balance sheet.
0:14.1	And you asked us, why would it need that money?
0:16.9	There was one reason it needed the money was that cash wasn't real.
0:20.3	Welcome to the Money Maze podcast.
0:22.6	I'm Simon Brewer, and Will Campion and I have created this show to explore and unravel
0:27.5	some of the mysteries surrounding the investment business.
0:30.5	You can keep up to date by visiting MoneyMayspodcast.com, and please sign up to our newsletter
0:35.5	to ensure you won't miss a release. If you enjoy this show,
0:39.3	please subscribe and we'd love you to tell a friend or colleague about it. Thank you for listening.
0:44.7	For all the narratives around investing and making money, those who've survived the investment cycles
0:50.8	for decades and earned above average returns have typically adhered to sound
0:55.2	disciplines. Valuing companies correctly, not taking shortcuts, not being swayed by management
1:01.3	ebullience, and that means digging into the financial statements and knowing what you're looking
1:05.6	for, especially red flags. It doesn't sound glamorous or sexy, but making money typically isn't. So in this episode,
1:13.2	we've invited a seasoned analyst, investor, author and podcast host to talk about these skills.
1:20.0	So Steve Clapham, from behind the balance sheet, welcome to the MoneyMays podcast. Well, thank you
1:25.2	for having it. I'm very excited to talk to you.
1:32.0	Steve, most people don't dream of becoming an unforgiving examiner of balance sheets and income statements in a desire to sift the good from the bad. Where did this begin? Is it a
1:37.1	product of a culvenous Scottish upbringing? No, sadly, no. It's completely by accident.
	...

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