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

To: Paul Senior who wrote (25051)	10/19/2006 2:46:42 PM
From: Madharry	Read Replies (1) \| Respond to of 78704

WEB doesnt give out any options. I think its just another way to sanction employee theft for the most part. The exception to me would be a start-up where I think employees should be rewarded for the risk of spending years trying to get a company of the ground which may well end up in BK. Thankfully most of my portfolio is green today.

To: Paul Senior who wrote (25051)	10/19/2006 6:51:35 PM
From: TimbaBear	Read Replies (1) \| Respond to of 78704

By and large my thoughts echo yours. However, I think we (the country) need to move to define the limits on how much of the corporate profits can be paid to insiders. After all, these are publicly traded companies which means that the corporation sold itself on the open market in order to raise equity to be used (presumably) to expand business. Prior to going public, whatever the insiders did with the profits was none of the public's concern. However, post going public, there has to be regulation in order to protect the shareholders from insider predation. While I applaud the fact that the SEC has finally moved against some companies, it is only for the most egregious practices of stock option backdated repricing. Even there, they have a policy of going easier on companies that are forthcoming with the facts after the SEC has notified them that they are under scrutiny. This results in CEOs and CFOs resigning but, otherwise, not really being penalized. So, if I'm a bright young guy or gal with a nefarious bent or expensive lifestyle (or both), I'd probably be willing to take the millions and then resign. Heck, I might not even need to be that nefariously oriented to do so! It's true that action could be taken to recover the money, but who would initiate that action and pay for it? It is less likely to be done by remaining company management who were probably hired by the people who resigned. The Board of Directors? Not likely in most cases, as they have been complicit in the pilferage in the first place. Without defining some boundaries and providing for stiff sentencing for violating the public's trust, and providing an ongoing budget for those charged with oversight and enforcement, there is no incentive for it to stop. As value investors, we must not only analyze the business performance, model, and factors of competition. We presumably engage in this endeavor in order to selectively invest in companies whose profitability and price to that profitability is attractive. We do so out of the belief that attractively priced profitability will accrue value to our ownership interest and that Mr. Market will some day vote favorably on that value accretion. However, if we falsely believe that true profitability is higher than it really is because we failed to perceive or properly account for the clever disguising of expenses; or if we improperly believe that management will use a higher percentage of profits for business improvement and management, instead, lines their own pockets with it; then we are likely to be very disappointed in the results of otherwise good research. In the absence of legal boundaries that would serve to keep the lion's share of the profits accruing to the benefit of the shareholders, I think we value investors would be well served to try to discover the true cost of management expense and make sure we deduct that cost in our efforts to determine net profitability. We may not live in a perfect world but as value investors we must construct our formulations in order to accurately reflect the one we find ourselves facing in order to benefit from the true gems we can uncover. Timba