Get Ready for the End of the GAAP Era

Editor's note: The markets and our offices are closed Monday, February 17, for Presidents' Day. Because of this, we won't publish Altimetry Daily Authority. Please look for your next issue on Tuesday, February 18.

The first few weeks of Donald Trump's second presidency have been a whirlwind of announcements...

From creating the new Department of Government Efficiency ("DOGE")... to freezing all rulemaking progress... reclassifying workers... and signing the "Unleashing American Energy" executive order... it has been hard to keep track of everything coming out of the Oval Office.

Underneath it all, though, Trump has one ultimate goal...

Unleashing a wave of deregulation like we've never seen before.

Make no mistake – if the president gets his way, deregulation will reach every corner of the government. And investors should be paying attention to one area in particular...

You see, Trump has already named Paul Atkins to be the new head of the U.S. Securities and Exchange Commission ("SEC"). Atkins has been described as a "deregulation zealot."

And he has a particular problem with generally accepted accounting principles ("GAAP").

Atkins says the rules-based approach of GAAP accounting hems in companies from showing their true performance...

We couldn't agree more.

GAAP accounting as it stands is useful for accountants... and not much else. It's simply not designed for investors.

If you've been following our work for a while, you're not surprised to hear us rail against GAAP. It's not just us (and Atkins), though.

In fact, nobody seems to understand the problems with as-reported accounting better than legendary investor Warren Buffett...

Like any public executive, Buffett has to start the Berkshire Hathaway (BRK-B) annual meeting by laying out the GAAP-sanctioned financial results.

In 2023, the company allegedly minted an unbelievable $96 billion in net income... much better than its nearly $23 billion loss the year prior.

This has nothing to do with the business doing that much better or worse, year over year. GAAP is to blame.

As a holding company, Berkshire has a lot of stock investments – which, of course, move up or down often...

Under GAAP, it's required to report those movements as gains and losses... even if it's not selling anything.

So Berkshire recorded a $68 billion loss on its investments in 2022. These were only losses on paper, though. The business didn't actually lose any cash.

Buffett is, understandably, more than a little irritated by these rules. He shares a different metric – operating earnings – alongside net income in his annual letters.

He also shares plenty of his thoughts on GAAP reporting...

So sanctified, this worse-than-useless "net income" figure quickly gets transmitted throughout the world via the internet and media. All parties believe they have done their job – and, legally, they have.

Using operating earnings, Berkshire is far more stable. Instead of swinging by more than $100 billion from year to year, it rose steadily from $31 billion to $37 billion. 

Not every public company has a Warren Buffett at the helm, though. Many simply accept the GAAP numbers, even though they're often misleading to investors.

And even Buffett can't just tell Berkshire investors how to accurately evaluate his business. He's required to share the company's GAAP results... then try to convince investors to pay attention to his adjusted numbers.

Under Atkins, the financial world could finally start shifting its mindset...

While GAAP reporting will likely stick around for some time, it might no longer be front and center in every annual report and earnings call.

We believe Atkins will push the SEC to allow expanded non-GAAP metrics, disclosures, and data points. He has already voiced plans to support companies being more open with reporting non-GAAP financials alongside the GAAP numbers.

In short, a flood of much-improved data could soon hit the market. Companies could finally have more flexibility to share the data that accurately represents their businesses.

That could change the fortunes of a lot of stocks that have been kept deflated by GAAP accounting.

And that makes today an exciting time to be "in the know" about Uniform Accounting.

Our entire approach is designed to highlight companies' real performance... the results hidden by traditional GAAP metrics.

We've spent years cutting through the GAAP "noise" to bet on misunderstood stocks with tremendous upside potential.

And under Atkins' reign, the rest of the market could start to see what we do... far faster than ever before.

We'll be ready.

Wishing you love, joy, and peace,

Joel
February 14, 2025

P.S. By the time investors start buying up these misunderstood stocks, it could be too late. For the best shot at the biggest upside, you need to get in before Trump and Atkins enact their deregulation agenda.

My team and I are all over this story. We've compiled a short list of stocks set to explode in the wake of deregulation.

All five are trading below our recommended "buy" prices as we go to press. But we don't expect that to be the case for much longer... Get the details here.