<<That's not how professors teach you to research a company in ivy league MBAs school. >>
The only thing that you're taught in B-school that matters is that the value of a stock is equal to the net present value of future cash flows available to equityholders. and frankly i didn't need to waste $50k to go to a fancy MBA factory to learn that as I'm pretty sure I learned something like it in my home economics class in high school.
Anybody who spent any time studying the financial statements of Enron, Worldcom, Tyco, Sunbeam etc realized that the companies were not generating ANY cash flows that were un-encumbered by either interest payments, taxes, or maintenance capex. In other words, there were NO cash flows available to equity holders. The net present value of no cash flows is nothing, $0 stock.
All the accounting shenanigans in the world do not change that simple fact. Grab the 10Qs for Enron from 2001; cash is FLYING out the door and debt is piling up while the whole time they are claiming "earnings". Grab the 10K for Worldcom and you will see the same thing, each and every year for years. It's all right there, plain as day for anybody who cares to look.
Legislation is not going to change anything. Cash is cash (even though i don't know what "is" is i know what cash is). While it is extremely easy to move accounting entries around (as Mr. Sullivan is elleged to have done at WCOM, classifying operating expenses as capital expenditure) it is relatively difficult and pretty rare to mis-represent your cash position. In the case of WCOM, if you move those expenses back to operating expenses, it simply takes them out of one bucket and moves them into another; the cash flow is still the same. Which is less than zero, and if a company generates no residual cash for equity holders, it is worthless.
Please understand, I am not blaming you (or other individuals who held mutual funds). You entrusted your capital to folks who's fiduciary reponsibility is to invest in a "prudent" manner. And your advisors did not do that; instead they were busy sharing steaks at Morton's with Scott Sullivan and having a fun time in the Hamptons & the Vineyard, fiddling while Rome burned. You should call your mutual fund and ask them why they owned Worldcom, or Tyco, or Enron. Do not accept the explanation "well, there's nothing we could do about it, we were lied to." They were NOT lied to; the truth is all there in the financials. Ask them how come a dood who spends his day posting on the Internet and coaching little league baseball and is so mentally disturbed he calls himself "Reaper" figured out these companies were in trouble but their $ million-salaried portfolio managers and analysts had no idea and were sharing a clam bake on the Cape when the news hit.
Frankly, I am very glad that I was fortunate enough to have been educated in the ways of accounting in my youth, and I do not envy people like yourself who really shouldn't be expected to know this stuff. But it is obvious the system has failed you, and you basically have a choice. You can become educated in the ways of finance (since on some level no less than your financial well being is at stake) or you can ask for "regulation" and stand comfortably by while the next group of charlatans takes what's left away.
Good luck to us all
Cheers |
