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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (16684)	3/26/2003 12:07:46 AM
From: James Clarke	Read Replies (3) \| Respond to of 78625

HRC hints. This is a great opportunity to learn forensic accounting. I think it was Charlie Munger who said anytime a company goes bankrupt you should look at the financial statements from a year or so before when the stock was still high and see if you can learn something. I'm not claiming that anybody could have concluded fraud, but you're just looking for red flags here to train yourself to recognize them next time. Rarely does one know something is a fraud until it the stock is at 3 - but just knowing a cash flow statement has the signs of one is enough to just not invest. (I was never short HRC, although now of course I'm kicking myself.) Don't expect to find red flags on the income statement - thats what these kind of managements are trying to make look pretty - focus on the cash flow statement. (And remember, the reason to own this in 2002 both before and after the first blowup was twofold - the dumb investors got burned because "it always beats estimates". The smarter ones got burned because they bought it for the free cash flow.) Look at free cash flow. Cash from operations minus capital expenditures. Thats how you calculate it, right? What is wrong with that analysis? Trust me, understanding HRC's 2001 cash flow statement will save you a lot of money in future investments and it will be a great use of an hour of your time. I'm not going to tell you the answer - the value comes from doing the work to find it yourself. Just go through each line of that cash flow statement, all the way to the bottom, and think about what they mean.