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

To: Madharry who wrote (38006)	5/24/2010 9:28:11 AM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 78473

one presenter was very skeptical about small chinese companies, said that he thought up to 1/3 of them were fraudulent. Up to 1/3? Why not 1/2? Why "up to"? Does that mean "from 0 to 1/3" and if so does that statement have any meaning at all? I hate the hack jobs who do no DD and just spew whatever comes to their mind. Whatever can be said about Asensio and his puppets, they at least show some evidence of work done and an investor can decide whether to believe him or the company. So far I have seen maybe 1-2 Chinese companies engage in something that legally can be called fraud. All the others? Yes, they are mostly young companies. Yes, mostly they do not follow the established practices of western company attitude to shareholders. They do secondaries while overcapitalized. They do not communicate well if at all. Sometimes they mess up their financial reports and have to restate them. They have insider dealings. They buy superfluous real estate at possibly high prices. Sometimes their business plans collapse. Sometimes they hold too much A/R and inventories. They don't smooth out earnings and revenues like pro companies. Is that all fraud? No. It's actually totally natural situation with young inexperienced companies in emerging country. Anyone who has invested for some time in emerging countries would have seen this many times. Actually, you can even see most of these behaviors in small-micro caps in US. Graham would not have invested in Chinese small caps NOT because they are fraudulent, but because they are "young". He advocated investing only into established companies with a long history of positive results, which naturally leads to working out all the kinks of young companies. On the converse side, if one decides to invest into inexperienced companies (whether in China, Someotherland or in US), one should not be surprised when there are kinks in the process of growing up (or going out of business). Crying fraud usually just means that the investor has no will or intention to understand what is going on.