Value Investing Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: sjemmeri who wrote (14801)	7/12/2002 12:41:47 AM
From: James Clarke	Read Replies (3) of 78626

To put these accounting scandals in perspective, let me just say I think it gets worse. There's a lot still to come out here. Think about this for a minute. First let me ask if anybody can name a couple examples of "accounting scandal" stocks which you could have made a significant profit (and kept it) by buying when it looked cheap? Quick, there must be a couple...still waiting...This is a fool's game in a bear market in my view and I am staying far away from these except on the short side. (I made my mistakes shorting the mania three years ago. Buying sleaze in this environment is the same thing as shorting an internet stock in 1999. With one exception. With the internet stocks you knew you were right - the company was clearly worthless - you just didn't know if it could double again and too often they did. Can anyone explain to me how one would value a company where the accounting is untrustworthy and there is a lot of debt? Tyco for example). I think a company where the numbers are uncertain is outside the discipline of value investing and I just stay away. Let me give you my thoughts on a catalyst for this accounting thing to get much worse. There were five big accounting firms, one of which is very disproportionately the accountant on so many of these scandals. Andersen was the accountant of choice for those companies who wanted to play games and were willing to pay extra fees to the accounting firm to do so, because apparently Andersen would sign anything if the company paid enough. There is just no other way to explain Worldcom's last annual report. And now everybody who formerly retained Andersen has a new accountant poking around and getting familiar with things. What would you do if you were a new accounting firm hired by an Andersen client? Would you just assume everything is OK? In this environment where signing off on a fraud bankrupts a blue chip accounting firm? Uh, no. You do a proctological audit, and if you find the slightest little thing you call the company on it. I believe that all former Andersen clients are in for a very probing audit, and there are going to be many that the new accountant is going to demand restatements or refuse to sign off. This will play out over the next 6-12 months and could make the last six months of accounting scandals look like child's play. There are going to be companies that will not be able to find an auditor to sign off on their annual report - I am short one or two of them. This ain't done. What I would suggest is to look through your portfolio and make sure you know which stocks were Andersen clients. And if there is the slightest doubt in your mind about the integrity of management or the integrity of the numbers on those stocks you are playing with fire. Its been very difficult for even the best value investors to make money owning stocks this year. Last year it was easy to make money - this year I have found it nearly impossible on the long side. I'm mostly on the sidelines now waiting for stocks to start screaming "BUY ME!" Virtually nothing is screaming at me now, in stark contrast to the post 9/11 market when everything was screaming "BUY ME!", and until they do I'm in cash and shorts. I think the market goes significantly lower before this phase of the bear market is done, not that there won't be rallies along the way.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next