The man who sees what the numbers hide
Joel Litman’s Altimetry presentation, which we reviewed in full here, describes a method that is genuinely different from most Wall Street analysis. Litman is a forensic accountant, and his approach is to start with the evidence rather than the explanation.
“A summary is somebody else’s conclusion,” Litman says. “A source document is the evidence before anyone got to it and told you what it meant.”
This is not a marketing line. It is a description of how forensic accounting works, and it is the foundation of the investment thesis that Litman presents.
The distortion thesis
The core of Litman’s method is the concept of “distortions,” gaps between the numbers companies report under standard accounting rules and the real economic value those numbers represent. The distortions are caused by accounting rules that were written a century ago for steel mills and railroads, applied to modern companies that grow through acquisitions, invest heavily in research, and sign long-term government contracts.
Standard accounting rules treat research spending as money set on fire. Litman’s system treats it as what it actually is: an investment building toward something. Standard rules handle acquisitions poorly, often making growing companies look less profitable than they are. Standard rules fail to capture the value of long-term government contracts, which can run 10, 15, or 20 years.
The result is that some companies look mediocre on paper but are genuinely thriving underneath. Litman’s system is designed to find those companies, and the examples he presents are compelling.
The Generac case
Generac makes backup generators. On paper, it is a boring business, and Wall Street priced it like one. But when Litman ran it through his system in 2019, the real numbers showed something different.
Strip out the accounting distortions, and Generac was roughly 3 times more profitable than what Wall Street saw. The country was getting more dependent on electricity every year, and the grid was getting less reliable, with California running rolling blackouts in real time. The government was about to spend enormous money fixing it.
The stock went from around $90 to nearly $500 at its peak, a 447% gain. Wall Street had been looking at a company earning a dollar when it was really earning $3.
The Oracle case
Oracle is a different kind of example. When Litman ran it through his system in March 2021, it came back with the highest grade the system can give. Top marks on quality, top marks on value, top marks overall. In Litman’s words, that clean sweep is the rarest reading he gets. Most great companies are too expensive to touch. Most cheap companies are not great. Oracle was both at once.
Even then, the official books were selling Oracle short. Reported earnings were about 31 cents on every dollar of assets, already elite. Litman’s system put the real number closer to 38. So even a company Wall Street already admired was quietly better than its own filings let on.
The government connection sealed it. Oracle’s cloud was being positioned to run the government’s most sensitive work, the Defense Department, the intelligence agencies. These are contracts you never read about, with the one customer on Earth that does not shop around and does not leave. Since that finding in 2021, Oracle’s stock has climbed as high as 418%.
The IQVIA case
The most dramatic example is IQVIA, analyzed in April 2020 at the absolute market bottom. Everyone was panicking and selling everything. Litman ran IQVIA through his system and found one of the largest distortions he has ever seen in his career.
The reported numbers showed a return on assets of 2%. A business you would walk right past. The real number, once the old accounting rules were stripped out and acquisitions and research spending were properly accounted for, was 75%. The old rules were off by a factor of nearly 40.
And the government piece? IQVIA was running the data backbone for the federal COVID-19 trials. Embedded right inside the national response, with durable government contract revenue completely hidden under the accounting.
Litman’s system discovered it at the bottom. The stock produced a 218% gain in just over 12 months.
Why the edge persists
The obvious question is: if Litman’s system works, why doesn’t everyone do the same thing? His answer is that the accounting rules that create the distortions are required. Every public company in America has to report under the same rules. Every quarter, the same companies report the same misleading numbers. And every quarter, the same Wall Street analysts, all trained on the same rules, get it wrong the same way.
“It’s not a one-time loophole I found and used up,” Litman says. “It’s a permanent gap, built into the system itself, that opens back up every quarter.”
The edge persists because the accounting rules do not change. Companies keep reporting under GAAP. Wall Street keeps analyzing GAAP numbers. And the gap between the reported figures and the real economic value keeps opening up, quarter after quarter, year after year.
The government-adjacent advantage
Litman’s specific claim is that the distortions are widest and most reliable in companies that do business with the government. These companies grow by acquisition, pour money into research for drugs, weapons systems, and advanced manufacturing, and sign contracts that run for decades. All three activities are handled badly by standard accounting rules.
The implication for the Second Declaration thesis is clear. If the government is about to pour trillions into rebuilding American manufacturing, the companies that receive that spending, the defense contractors, the chip makers, the rare earth refiners, the shipbuilders, are exactly the companies where Litman’s system has the most edge.
The honest assessment
Forensic accounting is a real methodology with real academic foundations. Litman’s credentials are genuine: he published in the Harvard Business Review, consulted for the Pentagon, and the FBI trained investigators on his methods. BlackRock tried to hire him twice. Institutions pay his firm up to six figures a month for his analysis.
The track record examples he cites, Generac, Oracle, IQVIA, Moderna, Benchmark Electronics, are specific, dated, and checkable. The methodology is coherent: strip out the distortions caused by outdated accounting rules, find the real economic value, and invest where the gap is widest.
The main limitation is that the system requires the distortion to close, meaning the market needs to eventually recognize what the forensic numbers show. In some cases, like Generac, the market recognized it quickly. In others, the gap may persist for years. But the approach is fundamentally sound, and it is a genuinely different lens from the standard Wall Street framework.
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