Excellent Enron analysis by innocent bystander on freerepublic tonight. A must read imo.
freerepublic.com
I have no sympathy for Enron Investors. (anyone want the facts?)
Posted on 1/13/02 5:17 PM Pacific by innocentbystander
First, let me point out that I am an Enron Investor. I made money as the stock went up; I made WAY more money as the stock went down. I think most of the people who did well at Enron will tell you the same thing. I’ve been short-selling for 5 years, and it can be very profitable if an investor follows very BASIC rules for determining the health of a company. The signs for the demise of Enron were so basic, so clear, so easy to spot, that I am angered by all of the faux-empathy being spewed for people who because of what can only be called greed-based stupidity have lost their shirts.
I’m going to try and explain some of those signs, and also try to dispel some of the incredible lies and innuendo surrounding the Bankruptcy of Enron Corp.
Take a good look at the chart above.
One of the most common lies about the 401K collapse is that the stock went from $90 to pennies DURING the time that the 401K plan was frozen. The truth is that the 401K plan was frozen for a very short time indeed. A few facts: In February of 2001, in order to improve its 401K plan, Enron requested proposals from third-party benefits firms to take over administration of its plan.
After selecting a new 401K administrator, Enron notified all affected employees in a mailing to their homes on October 4, stating that a transition period would begin on October 29. Between the first notification and the first day of the transition period, the company sent several reminders to employees over the internal e-mail system.
The transition period during which employees were unable to change investments in their 401K accounts lasted just 10 total trading days, beginning on October 29 and ending on November 12, 2001. The transition applied to all plan participants, including senior executives.
From October 29, the first day of the temporary shutdown, through November 13, the first day participants could transfer funds, the Enron share price went from $13.81 to $9.98, a drop of $3.83. On five of those trading days, Enron’s share price closed below $9.98.
Outside of the brief transition period, Enron employees have always been able to transfer their own contributions in the 401K, at any time. They have 20 investment options to choose from, Enron stock being one of them.
Now, how does that square with what you have been hearing? Again, look at the chart. Notice how long the stock price has been falling before you fall for some of the sob stories you keep hearing in the Media.
Now, many of you have heard that Ken Lay sent a memo stating that things were good at Enron. This is tricky, but listen up. What Lay did, what express confidence in the Enron BUSINESS PLAN. There was NOTHING in the memo about profitability, nothing about earnings, nothing about stability, it was just a statement of basic belief in their IDEA, nothing else.
Now, most decent investors run for the hills from statements like that memo, because I business that is doing well DOESN'T need to express confidence, its all over the balance sheet. I celebrated the memo as proof that my short selling was a good idea.
These are the kind of confidence statements that you heard from companies like Webvan, Lucent, Compaq, HP and others that were doing badly in the marketplace.
In the case of Enron, I would suspect it was a statement necessary for a company trying to secure additional lines of credit. Ever hear Microsoft come out and say: “Hey things are just great!” except for earnings reporting periods? They don't have to. Profit speaks for itself.
This leads to the next point; PROFIT.
For a company with the supposed earnings of an ENRON, where were the profits? We all know the story of Amazon.com, for whom profits are rare as sunshine in Seattle, but why didn't all these investors see that in light of all the supposed earnings, there were TONS of reasons to dump the stock. Here is a chronological order of significant events from an Enron Powerpoint presentation:
Ok, now, does anyone see any reasons to sell the stock since February; or at the very least a reason to start paying attention?
This is not going to be a lesson on investing. It is to point out that a number of significant public knowledge events occurred last year that could have shown ANYONE with an ounce of sense, that Enron was a dog, and dropping like flies. Now; I realize that stock analysts were still talking up the stock, and for that they should be shot, because any fool could have seen from the charts, the footnotes, the EVENTS and the trend, that it was time to get out.
Every Enron employee had the opportunity to get out and those who didn't are silly, stupid, greedy, or too naïve to be investing in the first place. They would like you to believe that they lost ALL their money during the 401K freeze but that just is NOT TRUE, in any way shape or form. So, why do you keep hearing it?
BECAUSE IT SOUNDS GOOD. The message is geared to illicit the maximum amount of sympathy from YOU. This will help their Class Action Lawsuits, poisoning the Jury pools to the truth, it will help Congress consider a bailout, based on lies and deceit; using YOUR tax money to pay for the ineptitude of others; instead of letting these people learn their lessons.
Did Enron break the law by changing 401K administrators? Nope. However; had they remained in charge of their own 401K plan, can you imagine the fallout now? It would be even worse than it is today if those dollars were being managed by Enron themselves. The media would now be saying that the Enron 401K was “looted” by management.
Unfortunately, there will likely be a few people at Enron who will go to jail, but NOT for reasons related to the 401K, but because some one will have to be scape-goated for accounting procedures that while LEGAL, may not have been above board. It should be said that when Enron restated their earnings, which caused their final collapse, they effectively insulated themselves from most prosecutorial action.
The misinformation you are hearing in the media is geared towards those of you who might find yourself on a civil jury. You are having your emotions played with, with almost no facts at all to back up the allegations. Don't be duped. Companies go out of business all the time. Enron has massive debt, that becomes clear when you look at their earnings statements vs. profits.
One could also look at their industry diversification to determine that they were a money losing proposition. Especially when Enron got into the broadband industry, one that has bankrupted more than a few companies in the past year due to capacity glut. What could a bunch of energy people know about broadband that the experts didn't know? Nothing.
What I am saying, is that investing; SERIOUS investing is WORK. You cant just stick your money somewhere and expect it to grow automatically. If you own a stock, and you don't know WHY it is going up or down, you really have no business in that stock, unless it is part of a no-load fund. It’s your money, if you don't want to manage it, put it in a damn bank, for crying out loud! There is TONS of information on the Internet about Enron and any other publically traded company. Every Freeper is already on the web, so you really have no excuse for not tracking your investments. Don't buy the crap about these Enron employees being kept in the dark. I don't work there, never did, and I got all the information I needed. Anyone with $50 dollars can pick up a copy of the Enron Company report from Market Research.com, or any number of places. These things available to anyone; not just serious investors.
No one needs to believe me, but these are the FACTS, and they are available all over the web. My only interest now, is in doing what I can to prevent Congress taking my tax money to bail out stupid people.
They will be starting precedence where people will begin to think that they cannot or are not supposed to EVER lose money in their investments. Over time; this will KILL the markets as we know them. Don't fall for the sob stories.
It should not matter a bit that some people MADE money. Every time a stock is bought or sold, SOMEONE makes or loses money. There are two bets in every transaction. One of those bets is WRONG. If you allow class-warfare to creep into the stock market, you will kill it as a vehicle for growth.
I think that is enough of a rant for one night? |
