What's Behind the Numbers?

A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio

By: John Del Vecchio, Tom Jacobs

Narrated by: Tom Jacobs

Length: 7 hrs and 9 mins

Publisher's summary

Companies are under more pressure than ever to "beat by a penny," but you don't need to be a forensic accountant to uncover where the spin ends and the truth begins. With the help of a powerhouse team of authors, you can avoid losing a chunk of your portfolio when the next overhyped growth stock fails by knowing What's Behind the Numbers?

Investing experts John Del Vecchio and Tom Jacobs mix a potent combination of earnings quality analysis, long-side investing, and short-side portfolio risk management to help you create a long-short portfolio with less volatility and greater returns, while avoiding landmine stocks that will blow a hole in your financial security.

First, the authors explain the practical side of financial analysis. They demystify widely held assumptions about stock performance, expected returns, earnings quality, and short sellers. Then they comb the financial statements to find the places where companies hide poor earnings quality. Finally, they provide the value and special situations investing to pair with the short-side thinking and offer a tactical manual for applying what you've learned in the technical, day-to-day world of portfolio management.

Armed with this wealth-saving guide, you can confidently trade based on clear data-not the aggressive accounting tactics companies use to make their numbers look better than they are. Better still, it helps you start protecting yourself right away with:

• Rules for finding companies playing with-rather than by-the numbers
• Repeatable methods for uncovering what companies don't tell you about their numbers
• Multistep approach to deciding when to sell a stock and when to short sell it
• Reliable formulas for determining when a stock will get hit

The next time a company goes south, you can be the successful investor who knew What's Behind the Numbers?

©2013 John Del Vecchio and Tom Jacobs (P)2014 Tom Jacobs

Critic reviews

"At Crazy Eddie, we succeeded in perpetrating our financial fraud for many years because most Wall Street analysts and investors took for granted the integrity of our reported numbers. What's Behind the Numbers? teaches investors to critically look under the surface and spot red flags that could help them avoid potential losses from fraudulent companies like Crazy Eddie." (Sam E. Antar, former Crazy Eddie CFO and convicted felon)

"I know of no other book that better teaches the reader how to determine earnings quality at a company, so you can avoid large losses on stocks you would otherwise own, and score profits by going short. Not only that, this book teaches you how to grow wealth with small-cap stocks in a way that would make value deity Ben Graham proud. . . . Essential for any investor." (Jeff Fischer, Portfolio Manager, Motley Fool Pro and Motley Fool Options)

"Under [Del Vecchio and Jacobs's] tutelage, forensic accounting is reduced to Math 101. We learn how to employ the metrics they use to expose financial chicanery in companies, to unearth the best short sales, and to protect ourselves from owning those stocks most likely to blow up and wreak havoc on your portfolio. Read What's Behind the Numbers? so you can keep your portfolio clear of ticking stock bombs. (Jeffrey A. Hirsch, Chief Market Strategist, Magnet Æ Fund Fund, and Editor-in-Chief, Stock & Commodity Trader's Almanacs)

"Wow! A must-read for anyone who thinks they know how to make money in the stock markets! Del Vecchio and Jacobs forced me to confront the stark reality of What's Behind the Numbers? It isn't pretty…. One of the best books on investing I have read in years." (Tom Meredith, former Chief Financial Officer of Dell Inc., venture capitalist)

"This work will be a sought-after reference book among investment managers and analysts for years to come."-Janet J. Mangano, CFA Institute's Financial Analysts Journal)

Please provide a companion PDF for the charts

Any additional comments?

It would be a much better and more complete experience if the listener of the book can see the many charts and figures the author reference to throughout the book.

Sharpen your pencil, and your thinking

This is great value all the way through. With some limited accounting background, I am able to follow it on my walks without reference to the downloaded charts and graphs, though these are clear and helpful. And this is a walk all around the hidden soft spots in company financials. These metrics are easy to calculate and straightforward to apply. And plenty of the statements are hedged (in a good way) to help from oversimplifying things. Little capsule company histories side-by-side with where the numbers went, help to back up these useful tools. I plan to listen again to internalize all of it.

Further Praise for What’s Behind the Numbers

What’s Behind the Numbers simplifies the subject of forensic accounting and financial statements analysis and guides the reader through a number of rules, formulas and methods for avoiding companies that practice aggressive accounting.

John Del Vecchio, CFA is the co-portfolio manager of the Ranger Equity Bear ETF and his past experience revolves around using forensic accounting to short stocks. Tom Jacobs is best known from The Motley Fool; his current position being the Lead Advisor for Motley Fool Special Ops which focuses on special situations. Their credentials provide the reader with plenty of conviction regarding their knowledge of value investing, identifying red flags and consequently shorting.

What’s Behind the Numbers has received positive mention from informal reviews by readers on a number of online websites; namely Amazon.com and by a number of investment professionals such as Jeff Fischer, Charles Sizemore, and the CFA Institute. This broad mix of praise points to the fact that key concepts have been broken down and are easy to read while at the same time the case studies and investment strategies mean that it is a relevant reference book for financial professionals.

The book focuses on aggressive accounting practices in order to recognise overvalued stocks however practices which are legal and which abide by accounting principles. Companies often bury important information regarding revenue recognition, inventory management and other financial shenanigans in the footnotes however, one does not need to go into such depth to identify the warning signs. Del Vecchio and Jacobs guide the reader throughout, with uses of examples to illustrate their point and explain the different tools available to investors to spot potential trouble. While they focus primarily in avoiding certain companies and thus avoiding a loss, certain cases warrant short positions that would lead to a profit.

Furthermore, technical analysis is also covered and this combination of identifying a stock that is losing momentum with weaknesses in the financials is a strong combination for avoiding or shorting a stock.

The book is narrated by one of the authors, Tom Jacobs, which is a positive sign as it does not sounds scripted but instead more colloquial. While the book does assume some basic knowledge of investing and accounting, it is narrated in such a pace so as not to lose the listener's attention. While potential audiobook listeners may note that tables and graphs are excluded and thus may show preference for the hard copy, these are in fact available for download at deljacobs.

In conclusion, the combination of empirical evidence, relevant examples for specific accounting practices, and a comprehensive writing style makes What’s Behind the Numbers a book that could benefit both business school students and investors alike.

the missing PDF companion

The companion PDF that has all the tables referenced in the audio book is either not available as a PDF download in audible or the web-site which the author claim can let us to download the PDF is non-existent www.deljacobs.com

Eye Opening!

Would you consider the audio edition of What's Behind the Numbers? to be better than the print version?

The PDF you can find on the web helps.

Was this a book you wanted to listen to all in one sitting?

Sure, if I had six hours in a day to do so.

Any additional comments?

This books will increase your risk management skills. I’m not a CPA but I am comfortable reading financials.

The first part of this book highlights thing to look for that could signal a red flag using examples from actual company’s financial statements.

If financials are of no interest to you the second half of this books provides an interesting breakdown for investing in a small cap long short portfolio.

A CPA rates this book 5-stars

Let's face it - this is not light reading. There is no romance involved nor is there a murder mystery to be solved. And the future of the planet is not threatened by the theories presented.

But - and you knew there was a 'but' - the book contains a heavy dose of lying, cheating, swindling and stealing --------- and it's all legal. Yes, this book details the ways accounting statements may be manipulated by companies to present the very best picture of its financial state to the investing public.

If a company's sales are lagging - why not reduce the inventory's selling price and sweeten the payment terms? There's nothing illegal in these actions - and company sales may well jump on these incentives. But longer term, these sales prices might have to be repeated over and over again to move stale inventory - reducing operating margins. And the sweetened payment terms might be too sweet - leading to an increase in bad debt expense. This downward spiral of decreased profitability may take a few quarters to show up to Wall Street, but inevitably the company's stock price will match the decline in the company's results.

What can an investor do to avoid such a situation? How can an investor pick up on the early signs of such troubles? Del Vechio and Jacobs have the answer! Their methods of analysis of financial statements often can spot financial problems before a company's stock price tanks.

All-in-all, the book very competently reviews the places where a company might - legally - manipulate revenues, expenses, allowances or cash flow in their financial statements. This book is in the best tradition of analyzing financial statements - following in the tradition of works by O'Glove on the "Quality of Earnings", for example.

The book's narration is done by one of the authors - Tom Jacobs - so the listener never feels that the narrator is 'just reading words' without any idea of what they mean. While I can't describe the narration as "lively" (as this book essentially is an accounting textbook), the pace and style of the narrator is pleasing.

In summary, this book is directed toward those with a good knowledge of accounting statements and of the stock market. However, beginning investors also could benefit from this book if they would only pick up one or two pointers on financial statement analysis.

As a CPA focusing on investments, I enjoyed the book -- and on many occasions as I listened to its chapters I found myself putting down my headphones and saying to myself "now - let's analyze my stocks from this same perspective...."

Must read

Rarely do you come across a book which isn't just an introduction, or stretches a single, simple tip across page after page, giving you the "yeah, yeah. I already got it" feeling.
This book was a pleasure to listen to, and, I assume, would be an even greater read. Missing the figures and tables make you stretch the imagination sometimes, but the book is so full of good insights that make you focus on learning how to invest rather than getting too hung up on individual stats. It is explained well enough anyways.
Great book!

Lots of great ideas and advice!

Adds validity to much of what I've been trying to do in the stock market and explained and expanded much information.

A bit technical at times, but well worth the listen.

Go For Growth

If you could sum up What's Behind the Numbers? in three words, what would they be?

Quality of earnings

What did you like best about this story?

Finding early warning signals for companies whose growth is slowing.

Which scene was your favorite?

Increase in stock inventories

Was there a moment in the book that particularly moved you?

No

Waste of time.

Too "advertisy". There are nice nuggets in and there but I think that overall is a waste of time and money. Buy Benjamin Graham Financial statements and Security Analysis instead, much better written and more complete.