Why It's Getting Harder to Find the Motive... And Have We Hit the 'Good Enough' Phase for Consumer Technology?

Editor's note: The Empire Financial Research offices are closed on Monday in observance of Juneteenth. Look for the next Empire Financial Daily in your inbox on Tuesday, June 21, after the Weekend Edition. There's a place to turn if you ever want to know the motive of public company fraud or aggressive accounting or stretched […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Editor's note: The Empire Financial Research offices are closed on Monday in observance of Juneteenth. Look for the next Empire Financial Daily in your inbox on Tuesday, June 21, after the Weekend Edition. --------------------------------------------------------------- Why It's Getting Harder to Find the Motive... And Have We Hit the 'Good Enough' Phase for Consumer Technology? By Herb Greenberg --------------------------------------------------------------- [Elon Musk's secret fuel?]( In addition to leading the charge for batteries, electric vehicles, and solar-powered homes, the Tesla founder is quietly working on a new type of fuel to power his SpaceX rockets. McKinsey, a leading consultancy, claims this technology will change our lives forever and create a $4 trillion industry. And one little-known company at the forefront of this industry has the potential to become "America's Next Big Monopoly." If you missed out investing in Tesla, Apple, Amazon, Google, or Netflix early on... this could be your second chance. [Get the details here](. --------------------------------------------------------------- There's a place to turn if you ever want to know the motive of public company fraud or aggressive accounting or stretched metrics... I'm talking about the proxy statement. This is where you can see how management is compensated – the salaries and, more important, how executives are bonused... And not just annual cash bonuses, but longer-term stock payments. The proxy is so important that it's one of the first stops I make when I research a company. I'm specifically looking for what hoops, if any, the executives have to jump through to get their extra payouts. I look for the actual metrics their bonuses are based on, assuming they're disclosed. (When they're not spelled out, it's a big red flag.) I also do a red-lined comparison with the prior year's proxy... to see what has changed. This sounds great in theory... But in practice, these things have become so convoluted that it's often impossible to fully understand without the help of a compensation consultant. Even then, it may not matter. As Michael Rapoport and Nicola White [reported]( recently in Bloomberg Tax... Many companies stack the deck in ways that often help their executives get big annual bonuses no matter how the business performs, Bloomberg Tax research shows. They "adjust" and boost the earnings numbers they use, or lower their own performance goals – making it more likely they'll hit the targets that trigger bonus awards. In other words, they move the goal posts. Or as corporate governance gadfly Nell Minow, vice chair of ValueEdge Advisors, told Rapoport and White... There are so many ways to game the system. It's absolutely atrocious. --------------------------------------------------------------- Recommended Link: [Whitney Tilson: 'He's a Stone-Cold Moneymaker']( The moment he started Empire Financial Research, Whitney Tilson set his sights on ONE man to hire. He doesn't look like a hedge fund manager, but he's made millions on Wall Street. Meet the radical, "Make Money Right Now Investor" who grew his fund 130,000% in the midst of the dot-com burst. [He's got a strange warning for Americans today](. --------------------------------------------------------------- The Bloomberg Tax report cites multiple examples, but my favorite is something called 'double adjustments'... According to the report, here's how it works... Many companies report adjusted, "non-GAAP" earnings, which are unofficial numbers that don't comply with U.S. generally accepted accounting principles, and strip out various one-time and noncash items. But some companies take it a step further: When using those earnings numbers as their performance yardsticks in determining executive bonuses, they strip out even more costs. That pushes the earnings numbers higher, and makes the performance targets that much easier to beat. And the only place the companies disclose those additional adjustments is deep in their proxy statements. At some companies, the second adjustment is enough to make the difference between meeting the target and missing it. For example, as the report cites... Herbalife Nutrition (HLF) double-adjusted in 2021. The company took an operating-income number it used in its earnings announcement, which already stripped out items like legal costs and COVID-19 expenses, and [adjusted it further]( to account for items like changes in currency exchange rates. The two sets of adjustments added about $60 million to Herbalife's operating income, taking it from $734.1 million in its [earnings press release]( to $794.9 million for compensation purposes. That took the company over its bonus target of $772.1 million. Result: Herbalife CEO John Agwunobi was awarded a bonus of nearly $1.5 million, part of a $7 million pay package. A spokesman for Herbalife declined to comment. Not surprisingly, things like this are easy to miss in a casual review of a proxy... which, of course, is the absurdity of it. After all, what's the point of disclosures if they're impossible to figure out? Moving on, I turned 70 the other day, and as much as I usually like the latest and greatest, I think we've hit that point where most consumer technology is 'good enough'... Or look at it this way: In technology, there's this thing called Moore's law – named after Intel (INTC) founder Gordon Moore. It says that the number of transistors on a microchip should double every two years. As a result, computers kept getting noticeably faster and faster and faster... which is why every new computer or device you used to get was smoother and better and could do more things. But I can't be the only one who has noticed that it's no longer necessary to get the latest and greatest. While Moore's law might not be dead, it appears we have hit that point where they've crammed so many transistors onto a chip that for the average guy, the changes are more nuanced than necessary. The camera on my iPhone 11, while not as good as the iPhone 13, is good enough... certainly good enough that I didn't do what I usually do and rush out to buy one of the last two models. For browsing, my phone is really fast. I'm sure 5G is faster than 4G, but 4G is really good... And from everything I've read, the difference for most people is negligible. The same goes for my laptop. Sure, I'd like the ones with the new chips and without fans, but this one is just two years old and works just fine. Plus, upgrading is a hassle. Ditto for the technology in my car – I'm sure the next iteration of technology will be a step up... but what I have is good enough. I could go on and on, but you get the picture... For many of us, we've moved from the "gotta have" to "good enough" phase. And right now, metaverse notwithstanding, that's good enough for me. One last note – be sure to check out my colleague Enrique Abeyta's latest presentation... In it, he reveals the entire system he has used to make money in every market crisis of the past three decades. According to Enrique, this method may be the best-kept secret of making money during a downturn. It allows you to target extreme discounts on some of the best stocks in the world while getting the chance to make thousands of dollars in extra income every single month. In fact, many of the greatest investors in the world have used this strategy, even if they never mention it publicly. You can watch the presentation completely free of charge [right here](. As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. Regards, Herb Greenberg June 17, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](