Before I share the best things I am reading and thinking about today, here’s a request.

If you’ve been enjoying the newsletter, please share it with friends on , , or just send them here.

Anyways, here are the best things I read today –

• “Always laugh when you can. It is cheap medicine,” so said Lord Byron. Well, laughter is great, and especially when you are going through troublesome time. Here is something to make you laugh out loud this morning. A meme circulated on Twitter recently suggested that companies suffering from the global pandemic will trot out a new performance metric: EBITDAC, for earnings before interest, tax, depreciation, amortisation and coronavirus. It’s apparently not a joke.
   
  Some companies are actually tweaking their figures to avoid triggering defaults on loans, like this German firm that has added back €5.4 million profits to its first quarter that it said it would have made were it not for the hit caused by lockdowns!
  

  Another firm in the US recently raised $325 million of junk bonds while including a term that would allow it to add back “lost earnings” due to Covid-19 in the future. Well, let’s wait for results from Indian companies in July to see if this trick is up their sleeves too!

  In simple terms, EBITDA, the elder brother of EBITDAC, is a measure of a company’s overall financial performance and is used as an alternative to simple earnings or net income. EBITDA, however, can be misleading because it strips out the cost of capital (debt) and essential investments like property, plant, and equipment (because it is prior to depreciation).

  By the way, Charlie Munger has said this about EBITDA —

  …every time you see the word EBITDA, you should substitute the words bullshit earnings.

  Not sure what he has to say on EBITDAC! 
   

• Kuntal Shah of Oaklane Capital Management presented his thoughts on investing under uncertainties yesterday for the CFA Society India. It was an insightful session with lot of macros, historical perspective, and book suggestions. Kuntal’s parting thought was from Charlie Munger, who has said – “There is no better teacher than history in determining the future… There are answers worth billions of dollars in 30$ history book.”
   

   

• The laws of investing, by Morgan Housel. Last year’s piece, but laws are laws. Anyways, law number nine states that big results are driven by tail events, so winning while losing much of the time is normal. Morgan writes –
  

  Anything that is huge, profitable, famous, or influential is the result of a tail event – an outlier, one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail it’s easy to underestimate how rare and powerful tails are.

  But tails drive almost everything. A minority of participants will capture outsized returns because opportunity attracts competition, and the winners of that competition tend to lock in because customers, employees, and investors want to associate with winners.

  A diversified portfolio will derive most of its long-term returns from a minority of companies. Those companies derive most of their value from a minority of products, and those products were the brainchild of a minority of employees, who were educated at a minority of schools, on and on.

  The takeaway from tails is that you should be comfortable when a lot of what you do and see doesn’t work. If you become paralyzed when a few things don’t work you’ll never stick around long enough to enjoy the few things that do.

• Well, people playing the short game in the stock market make their own laws! So, they were all up and excited yesterday, and the Indian market surged, as the ₹20 trillion economic stimulus package announced by the PM was significantly higher than their “expectations.” However, those very people have realized today that the package is not enough to cheer them up, and are thus on a selling spree. And, by the way, here are the leading experts brilliantly predicting what the market will do tomorrow –
   
  
   

   

• Finally, even as man is crazy, Dr. Seuss is truly wonderful –
   
  

   

  It’s a troublesome world. All the people who’re in it
  are troubled with troubles almost every minute.
  You ought to be thankful, a whole heaping lot,
  for the places and people you’re lucky you’re not!

  (h/t Michael Batnick)

That’s about it from me for today.

If you liked this post, please share with others on , , or just email them the link to this post.

Stay safe.

With respect,
— Vishal

https://www.safalniveshak.com/ebitdac/