Our Mission

New Constructs® aims to help restore the integrity of our capital markets to ensure that the United States remains the most prosperous country in the world (see our blog for more detail on "Why Integrity Matters" and "Why The US Capital Markets Are Important"). The original business plan for New Constructs was titled: "Bringing Integrity to the Capital Markets." We have lived up to that commitment every day since New Constructs was incorporated in July of 2002.

FAQ - regarding our Mission:

What is Market Integrity?

Markets have integrity when buyers and sellers can trust each other to execute fair deals. Investors tend not to make bad investment decisions intentionally. Usually, investors make bad investment decision because they are misinformed or underinformed by sellers.

How is Market Integrity Maintained?

Investors are able to trust the markets when these three cornerstones of market integrity are in place:

  1. Accountability for accuracy and completeness of reported financials - companies need to know that their filings are reviewed with a fine-tooth comb to ensure they are deterred from Enron-type misreporting.
  2. Accuracy of profitability measurement - investors need to know that they can trust the profitability measures provided by the market. Reported Earnings and Income Statements have never and were never intended to fulfill this purpose. In reality, "earnings" are manipulated and "managed" to dupe investors more often than not.
  3. Transparency of valuation measures - there are myriad approaches to valuation, which often confuse investors. Many of the most common valuation techniques (e.g. Price-to-earnings ratio) are based on unreliable information such as earnings and are subject to manipulation. In truth, and as Warren Buffet has stated repeatedly, there is only one true way to value any investment - measure the present value of its future cash flows.

How Does our Research Fortify the Cornerstones of Market Integrity?

  1. Accountability: hold companies accountable for all of the three issues listed above
    1. Provide investors with a list of companies that commit Corporate Disclosure Transgressions (report available in our Free Archive).
    2. Write reports and work with the media and Congress to bring light to disclosure transgressions. See News for many articles and interviews on disclosure transgressions. See Investment Perspectives for many reports on the same topic.
    3. Rigorously analyze SEC filings to identify all of the existing and potentially new disclosure transgressions that exist in corporate financials.
  2. Accuracy: hold companies accountable for the accuracy of reported financials
    1. Provide investors with reports on the true profitability of 3000+ companies by taking into account ALL relevant information, not just reported earnings.
  3. Transparency: show assumptions behind all profitability and valuation measures
    1. Profitability: each of our Company Valuation Reports provides a summary of all the adjustments (Appendix 2) we make to reported financials as well as a detailed reconciliation of Net Income and Economic Earnings (Appendix 3).
    2. Valuation: our reports (pages 6-7 and Appendix 8) and MaxVal models enable investors to measure, specifically, the future financial performance required to justify stock prices. For details on why this approach to valuation is more transparent and effective than picking target prices, see the "Cash Is King - The Truth About the Value of Stocks" in our Help Section.

What Issues Does our Corporate Disclosure Transgressions Report Reveal?

  1. Omission of required disclosures - such as entire sections of the Financial Footnotes
  2. Unethical assumptions used in the calculation of earnings - such as volatility estimates that are far below their true level in order to reduce the cost of option expense reported in earnings
  3. Exploitation of grey areas in accounting - such as the use of operating leases to hide debt off-balance sheet
  4. Misrepresentation of profitability - the heavy reliance on reported EPS could be mitigated by offering a more comprehensive and standardized measure of profitability for all U.S. stocks

What is Hindering Market Integrity and Why are the Corporate Disclosure Transgressions Not Being Addressed?

  1. Accountability
    1. Regulators, rating agencies and most investors are ill-equipped to keep up with Wall Street's constantly evolving financial machinations.
    2. Companies, except in a few rare cases, remain undeterred from Disclosure Transgressions (a free copy of our report to Congress is in our Free Archive).
  2. Accuracy
    1. In reality, reported earnings are manipulated and managed more often than investors realize.
    2. Wall Street has created myriad approaches to valuation in order to confuse investors. There is no generally accepted standard for valuing stocks.
    3. Lack of standard measures of profitability and valuation enable sellers of stock to engage in all sorts of financial engineering.
  3. Transparency
    1. As the primary providers of financial information, Wall Street and Corporate America have no incentive to provide better information to investors. They have made lots of money selling stocks and are happy with the current system.
      1. The financial sector lobby spends about $1mm and retains about 4 lobbyists per congressperson per year, according to many sources including Larry Summers; see his interview on ABC.
    2. Not enough people understand how to get to the truth behind profitability and valuation; so no one knows what to ask for.

Our comprehensive research holds companies accountable and arms investors with tools for identifying companies that try to exploit the accounting system.