Here’s a recent interview with James Chanos in which he discusses the two major areas of fraud that investors should be wary of right now. Here’s an excerpt from that Interview:
I think two areas are really areas to watch out for. The first is the fraud, I think the fraud that’s hiding in plain sight, which is the aggressive and over aggressive use of metrics rather than gap earnings. We see it particularly in the lavish use of share based compensation in Silicon Valley. But everywhere where people simply are paying employees with stock and adding it back to pro forma earnings, anyway you cut it compensation is an expense. It should be expensed whether paid in stock or cash. And then I could go on with all the adjustments to EBITDA in the private equity space. We don’t have time to get into all that but…
A lot of the aggressive and maybe overly aggressive behavior is staring you in the face in this cycle. A lot of it on the west coast, and then if we want to go further west I think the other area, and we saw it this morning with Luckin. You have to avoid these Chinese companies like the plague. I’m sorry. I mean I don’t know how many times investors have to be burned in these companies that are just too good to be true. Growing at 40, 50 percent a year, with all kinds of audit transactions with affiliates. Variable interest entities based in Cayman Islands..
You can watch the entire interview here:
(Source: You Tube)
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