Someone mentioned Greggs as a simple to understand business. I'm sure that's true, but PatVal is a not dissimilar business, and we saw what happened there. A simple business of selling buns (or cakes) can get quite complicated if people want it to.
I'll declare now that I don't know very much about Burford but as a reasonably keen follower of business and the markets I find it a remarkable (and frankly scary) story, of how a reasonably large company can lose so much value, so quickly.
Burford strikes me that it's by nature a very complicated business, in quite a risky industry. It also achieves its revenues in large lumps, and there's no real guarantee that more large lumps will follow. In most businesses, previous sales tend to lead to more revenues - the customer needs more widgets of a particular design so he can make more cars, a consumer runs out of Diet Coke and he only drinks Diet Coke, whatever.
But Burford's cases (and thus revenues) AIUI are largely unrelated to each other. Sure, they can use data and judgement and experience from previous cases to inform the future ones they take on, but that's about it.
And cash is as we know very important; Enron reported very strong revenues and earnings almost to the very end (and I think Lehman too), but its detractors noticed early (and very profitably, for them) that it had very poor cashflow, and indeed IMS it was one of the only large US companies that didn't make quarterly cashflow statements, knowing these would not look good to Mr Market. But the data was there, if you dug deep enough, albeit on a less regular basis than usual. Indeed, mad though it sounds, much of Enron's fraud was hidden in plain sight, in arcane accounts that it seems its own managers didn't really understand, let alone nearly all outsiders. And though in that case there was fraud, it isn't entirely clear that anyone there apart from literally 3 or 4 people thought they were doing anything wrong; they were bending rules, not breaking them, and isn't that what everyone does?
The Enron example is mentioned by MW in its report, especially in reference to Burford's 'non-cash accounting profits', though I have no way of knowing if the comparison is fair or not.
I appreciate the need for 'non-cash accounting profits' in accounts, but such things are little use when it comes to the realities of needing cash to pay wages, taxes, dividends and everything else. We all know from our personal accounts that we can dress up our spreadsheets however we like, but if we don't have cash to pay the gas bill and mortgage, we are quickly bust.
We had the example only recently whereby Aston Martin plc booked the sale of intellectual property of £19m in 2018; it didn't actually receive the cash, and indeed the sale has since fallen through/AM doesn't think they'll get the cash (not sure which, exactly) and a provision has had to be made in the most recent accounts. One of several reasons I think why the company's shares have been a total disaster for anyone unfortunate to have them, having lost 74% since IPO just in October. The man in the street might reasonably ask: how can you book a sale on cash you haven't received in your bank account?
Cash management is probably the most fundamental requirement of any business (or household, as I sometimes need to remind people in my life
). MW claims that Burford's voracious need for it is why it needs to raise more, so often, and is why MW states it faces a liquidity crunch, which I think is a posh way of saying that it risks running out of money...
I recall that the likes of Buffett pay little attention to reported profits, and everything onto cashflow, and he likes to see reported profits in plain old cash. Terry Smith has a similar focus, looking closely at cash-conversion for the companies he owns in his fund. Sales are vanity, profit is sanity, but cash is reality.
Avoiding 'complicated' businesses is far from easy - I own directly or indirectly interests in plenty of companies which are complex; as someone has observed, how exactly does HSBC or whatnot make money? And we have to trust accounts within reason, and the people who work at companies on our behalf. And Burford does seem to come down to trust, at the end of the day - for me, there are plenty more straightforward companies to invest in - I like to think!