WorldCom Won't Be the Last Scandal
By Herb Greenberg
Senior Columnist
06/25/2002 09:04 PM EDT
The credibility crisis just got worse with tonight's WorldCom news.
This latest accounting fiasco won't offer comfort to the average investor who is currently under water with a mutual fund. That very investor may decide that 1% in a money market is better than the risk of the stock market, and that may be the safe bet (for now!)
WorldCom (WCOM:Nasdaq - news - commentary - research - analysis) isn't likely to be the last disaster. As I noted on the Columnist Conversation on RealMoney.com earlier tonight, there was so much at stake during the bubble that as Arthur Andersen is replaced and as boards of directors -- worried about their own liabilities -- get tougher, more is bound to come out. (Maybe WorldCom, one trusty reader writes, will finally put an end to the use of EBITDA (earnings before interest, taxes, depreciation and amortization) as a measurement of value.)
We haven't even started to hear about big restatements from smaller companies, though the alleged fraud at Peregrine Systems (PRGN:Nasdaq - news - commentary - research - analysis) is a prime example of what investors may still have to deal with.
I thought we'd see the worst of these disasters with the release of last year's 10-Ks by March 31. (The fourth quarter is always the audited quarter.) I said so in my column. I said so on Cramer's show. And I even said so in Fortune, where I explained that I was afraid to invest, before March 31, because as somebody who focuses on the dark side of the Street, I knew too much.
Turns out I was early, and the more disasters, a la Enron and WorldCom, the less investors will want to hear about stocks no matter how low interest rates may go.
There's no telling how long the impact of the damage may last. One reader/money manager with great instincts figures this is the third or fourth inning of the accounting-mess cleanup.
Stocks, in the meantime, are likely to look dead. Therein will lie a fabulous opportunity for investors, especially those with patience. (I stress the word patience.) Yes, this is Mister Negative reminding you that plenty of babies are being thrown out with the bath water. (Ah, the contrarian in me.)
Every CEO and CFO isn't a crook, and every stock isn't excessively overvalued. I don't pick stocks, so I can't tell you which are the best. But common sense tells you that just as opportunities were borne out of the "stocks are dead" era of the '70s, opportunities will be plentiful this time, as well.
Just don't expect anybody to ring a bell telling you when that will be.
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