Energy Sector

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The Energy sector ranks eighth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report.

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Discontinued Operations – Valuation Adjustment

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There is one last adjustment we must make involving discontinued operations: adding net assets from discontinued operations to shareholder value. Because discontinued operations are parts of a company being held for sale, the value of the net assets from these discontinued operations approximate the cash the company will receive from the sale. This cash will then be available for distribution to shareholders.

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Deferred Tax Assets and Liabilities – Invested Capital Adjustment

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DTAs artificially raise reported assets and do not help generate operating profit while DTLs are like a source of interest-free financing. We remove the impact of DTAs and DTLs from our calculation of invested capital to ensure the more accurate measure of a firm’s return on invested capital (ROIC).

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Asset Write-Downs – Invested Capital Adjustment

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For debt investors, which GAAP was primarily designed for, write-downs are analytically helpful. They provide a more accurate assessment of the liquidation value of a company’s assets. For equity investors, on the other hand, write-downs are not helpful because they distort the return on invested capital (ROIC) of a company.

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Discontinued Operations Removed from Invested Capital – Invested Capital Adjustment

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Most investors would never know that discontinued operations distort GAAP numbers by over-stating assets on balance sheets and distorting the picture of a company’s ability to generate a return on that capital.

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How To Survive the Euro Crisis

As I wrote in “Don’t Be Fooled: Get Short Now”, the euro is not that different from Enron, WorldCom or the Madoff fund. All of these organizations were able to pretend they were profitable or solvent long after they were insolvent.
Now markets are finally acknowledging the intractability of the Euro debacle.

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Low-Cost Funds Dupe Investors

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Fund holdings affect fund performance more than fees or past performance. A cheap fund is not necessarily a good fund.
Our research on holdings enables investors’ to find funds with high quality holdings – AND – low fees.

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Best & Worst ETFs and Mutual Funds: All-cap Blend

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The all-cap blend style ranks third out of the twelve fund styles as detailed in my style roadmap. It gets my Neutral rating, which is based on aggregation of ratings of 32 ETFs and 607 mutual funds in the all-cap blend style as of April 24, 2012. Reports on the best & worst ETFs and…

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Forensic Accounting Says Avoid Energy & Financial Stocks

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As one financial scandal follows another, it seems the good guys are having a tougher time catching the bad guys. Recent revelations about MF Global’s ponzi scheme are another reminder of how our regulatory and oversight systems seem to let whales pass through their net.

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