Fridson's book is divided into three sections. The first is an introduction to fundamental analysis, as well as a criticism of its standard practitioners, equity analysts, who, per Fridson, lack a thorough understanding of accounting. This criticism jives with my own understanding and is one of my principal reasons for pursuing my CPA. His criticism of earnings (and derivative ratios, e.g., PE, EPS) is sensible. Earnings are an accounting construct, not an economic reality, and, as they are the subject of intense focus, they are subject to manipulation, both legal and illegal.

Additionally, Fridson makes a point that other growth-oriented analysts have made elsewhere: GAAP unfairly penalizes asset-light, R&D-heavy tech companies. GAAP allows PP&E to be capitalized but requires R&D to be expensed (though there are exceptions that Fridson doesn't mention), meaning that all of R&D cost hits earnings during the period in which it is incurred, as opposed to being spread out over many periods. The effect is that tech companies have lower earnings and, other things equal, higher PE multiples. This is all true, but unlike Fridson, I don't view this as problematic. Conservativism is a foundational principle of accounting, and the future economic benefit of R&D, especially on the vanguard of science and technology, is highly uncertain. Thus, if GAAP categorically permitted the capitalization of R&D, the assets on companies’ balance sheets would deteriorate. Such a change would, further, be tantamount to the accounting profession lending credence to outrageous valuations and speculative exuberance. The archetype of an accountant is the crotchety, old fuddy-duddy who is apt to introduce some sobriety into the bacchanalian revelries of speculators. GAAP should reflect this.

The second section presents several case studies of top-performing stocks of recent years, both in and outside of the S&P500. The most lengthy case study covers Tesla, which had the greatest annual performance of any of the stocks the author covers, rising 743% in 2020. Fridson's Tesla case study misses three crucial aspects of Tesla's meteoric rise:

1. 2020 witnessed the most accommodative monetary policy in the history of the world, or at least in post-WWII US, which disproportionately benefited speculative, growth-mode, tech companies such as Tesla, as their valuations discount profits in the distant future.

2. US industrial policy and the regulatory regime favor Tesla. It's been about 1.5 years since I've done the DD on this, but my recollection is that the EV credits Tesla receives were greater than its earnings, that is, Tesla wasn't profitable without regulatory credits. Maybe this has changed in the meantime, but I'd wager that EV credits are still a non-insignificant fraction of earnings. Secondly, the US subsidizes EVs via rebaits; I believe the recent price cut on some of their models was done in accordance with subsidy criteria per the CHIPS Act for EVs.

3. Musk's understanding of the memetic and reflexivity. Instead of developing this point, I'll just quote from an essay of mine: Reflexivity is the process whereby "investors’ perception of economic reality ends up altering economic reality (Mansharamani, 2011). A company’s stock price can wildly diverge from what is justified by its fundamentals, for instance, and the difference between the two can border on the absurd; but an elevated stock price can alter the economic reality of the company, such as by lowering its cost of capital, and the market value and economic value may begin to converge. Tesla is an example. Its success can, in part, be attributed to Musk’s understanding of the memetic and the power of narrative, e.g., his use of Twitter, posturing about climate change, the tech singularity, AI, etc." Robert Shiller (2019) is the guy to read on the power of narratives in economics, and John Cassidy (2002) is good on overvalued tech companies. (DM me and I'll send you my paper on it.)

The final section discusses Fridson's screening criteria for stocks with explosive growth potential. Note that they will also select for stocks that are poised for price declines if not bankruptcy.

1. Stock price volatility - the stock price will be especially volatile

2. EPS forecast dispersions - analysts' earnings estimates will vary widely

3. Sub-optimal credit rating - company's bonds won't be considered investment grade by rating agencies

4. Market cap decline - the median Y/Y market decline was 30%

The criteria might seem a bit queer. Why look for non-investment grade stocks or declining market cap? But recall what Fridson is looking for—he's not wanting a 7% return; he's looking for explosive growth. Thus, the risk is the price he pays for the return. It's also noteworthy that he advises that only 5-10% of portfolios be devoted to this strategy, with the research being passively invested in ETFs that broadly track the market.

He also wrote a textbook on financial statement analysis that appears to be fairly popular, which I plan to check out.