This week I read an article in the Wall Street Journal about the software company Autodesk misleading their shareholders. On May 31, 2024, the Board of Directors revealed that Autodesk's Management Team lied to shareholders about how they billed their customers. The company told shareholders they were signing customers to annual contracts instead of multi-year agreements, but when Autodesk realized they were falling short of their financial goals, they went back to their old system of signing customers to multi-year agreements without telling shareholders. Although Autodesk wanted to get away from multi-year agreements because customers required a lot of discounts in order to sign them, they did allow Autodesk to collect more money up front from their customers and meet their financial goals.
There's nothing wrong with companies changing their strategy, they just can't lie to shareholders about what they're doing. The company is now being investigated by the Securities and Exchange Commission and United States Attorney’s Office for the Northern District of California.
Why Did Autodesk Mislead Investors
If we look at page 28 of Autodesk's Proxy Statement, they mention some of the factors that impact the Management Team's compensation, such as revenue, total shareholder return (TSR), and free cash flow.
The managers at Autodesk knew they were going to fall short of expectations, get less pay, and maybe hurt the stock, so they did things in the background to make sure they made their numbers.
Incentives Matter
Investors should always know what is driving the compensation scale for a company's Management Team and try to understand how managers can manipulate those factors. Each industry uses different methods to manipulate their numbers, so we need to learn the tricks specific to the industry we're studying. We should then monitor these factors from quarter to quarter, because managers might fly straight for a few quarters, but if they experience too much turbulence in their business, they might veer off into the land of crookedness.
We cannot rely solely on "experts" to uncover the fraudulent games companies play. We must investigate the numbers ourselves and come to our own conclusion.
Manipulation of Numbers In Sports
The manipulation of numbers is all around us. On June 20, 2024, Yahoo writer, Tom Haberstroh, came out with a bombshell report that said the stats used to crown Michael Jordan as the "Defensive Player of the Year" in 1988 were inflated. When Tom watched Michael Jordan's games and counted his steals and blocks, he realized that the numbers he had did not match the numbers presented by the NBA.
For example, during a six-game stretch, Jordan was credited with 28 steals, but when Tom counted, Jordan had only 12 steals.
After speaking with people who were involved in the league during Jordan's time, Tom learned that it was normal for scorekeepers to inflate the numbers of players from the home team. So even sports stats are not as ironclad as people think.
Tom's article is below. It is a fascinating read.
Key Takeaway
Numbers are not as objective and precise as people want us to believe. In the hands of skilled manipulators, numbers will say whatever a person wants them to say. When investing, always view numbers with skepticism, do your own research, and remember that men, women, and numbers lie all the time.
If you have any questions or comments about what was written today, don't hesitate to email me at ov@myinvestmentdreams.com.
Stay strong, stay blessed, and God willing, I will see you next week.
See, this alone I found, that God made man upright, but they have sought out many schemes.
Ecclesiastes 7:9 ESV
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