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

To: Micah Lance who wrote (57053)	3/22/2016 10:48:38 AM
From: Graham Osborn	Respond to of 78747

Financial Shenanigans by Schilit. There are no absolute patterns but I find his accounting statement categories useful.

To: Micah Lance who wrote (57053)	3/22/2016 11:25:19 AM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78747

Quality of Earnings by Thornton O'Glove Overall, it also depends on industry a lot. Banks can do different shenanigans than oil&gas E&Ps than tech companies than airlines. One approach is to decide if you trust the management first. But that's sometimes chicken and egg issue - do you read the numbers and therefore trust the management or if you trust the management and therefore believe the numbers. I guess it has a to be a mix, though in some cases (banks, insurance companies), you pretty much can't dig to the bottom. Then you either trust the management or you don't and move on.

To: Micah Lance who wrote (57053)	3/22/2016 8:33:34 PM
From: Spekulatius	4 Recommendations Recommended By bruwin E_K_S MCsweet richardred Read Replies (3) \| Respond to of 78747

There are many telltale signs of accounting frauds, and while it often not possible to know if it is a fraud for sure, these telltale signs can indicate increased risk: 1) Rapidly increasing and complex balance sheet and income statement 2) Balance sheet and income statement out of whack with industry metrics 3) Rollups 4) agressive management, strong incentives for growth, stock price 5) use of non GAAP metrics, which tend to have a huge gap to GAAP metrics 6) Increasing debt A recent example is VRX. The more signs you see of the above, the higher the risk.

To: Micah Lance who wrote (57053)	3/24/2016 11:34:13 AM
From: LukasSavickas	Read Replies (1) \| Respond to of 78747

Read Financial Shenanigans by Howard Schilit;

To: Micah Lance who wrote (57053)	3/25/2016 5:23:32 PM
From: richardred	1 Recommendation Recommended By Micah Lance Respond to of 78747

Although a little antiquated now. On particular insights of well run companies- In Search of Excellence by Peters and Waterman

To: Micah Lance who wrote (57053)	3/31/2016 1:58:02 AM
From: bruwin	1 Recommendation Recommended By Micah Lance Respond to of 78747

My suggestion .... "Warren Buffett and The Interpretation of Financial Statements" by Mary Buffett and David Clark (ISBN 978-1-84737-437-0). If a company can simultaneously and regularly meet all, or most, of the criteria that Buffett recommends, then one need not be concerned about investing in a "lemon" or being mislead ... IMO.

To: Micah Lance who wrote (57053)	4/1/2016 8:56:10 AM
From: LukasSavickas	1 Recommendation Recommended By Micah Lance Respond to of 78747

Regardless, I'd add "Creative Cash Flow Reporting" to this. The best way to avoid fraudulent stuff is to pick case studies yourself, the next thing, is understand business, either way, margins and so on, have to be realistically acceptable and logical. Also, ask questions. Then answer them. No one ever got dumber by asking questions. Enron growth rates were exceedingly unrealistic added together with their CFO , as I mentioned before, grab financial shenanigans and ask questions. Therefore, Bruce introduced 'Destroy the company' concept which you should implement together with the principle of destroying your investment idea. Cheers, Good Investing,

To: Micah Lance who wrote (57053)	4/1/2016 11:55:39 AM
From: Paul Senior	2 Recommendations Recommended By E_K_S LukasSavickas Read Replies (3) \| Respond to of 78747

A lot of implications to your question. Of course you received some suggestions here as to how to spot and avoid "funny accounting" You say you are concerned you might miss something "painfully obvious". I found that that happens to me occasionally. Always after the fact: company has problems, they get highlighted in the media, media pundits point out that "almost anybody" could have seen it coming. So obvious. (Otoh, of course, the many analysts who might be following the stock didn't see it or report it, nor did the large shareholders/mutual fund holders/hedge funds.) How much effort do you intend to make in "reading a balance sheet"? You are starting out investing with maybe not much money. Therefore you likely will want to concentrate your efforts on a few stocks. So maybe spend a decent amount of time researching/studying each stock you will buy. You can't afford to let something "painfully obvious" kill your small portfolio. Yeah, you'll avoid a few bullets studying the balance sheet -- no assurance that you will avoid all the bullets though. Imo, the only sure way to avoid clunkers due to "funny accounting" is to not buy any stocks at all. Another thing: In my view value investors are paid to take pain. I generally buy stocks when they are down or dropping. And they often (usually) continue to fall after I buy them. Plus, there's some time that's usually required to own them before their prices improve. So it can be painful to hold. My point is that one way or another, if you own value stocks you're going to endure something "painfully obvious". You can't get away from it. Obviously though you want to mitigate it, so you could use the suggestions others have mentioned here. But if you intend or expect to eliminate pain from your value investing efforts, you may be disappointed. I maintain a large/diversified portfolio. Every year I'm surprised to find I have one or two stocks where the company turns out to be fraudulent or has issues where if only I had read something or researched deeper I should've/could've known to avoid the stock. So I'm a person who's lost money on Enron, World Com, Health South, Valient, Linn, and others. In the totality of things, these losses from accounting shenanigans haven't been significant enough to really harm my portfolio. Nor were they the most serious problems/losses that I have faced (market preference/legal issues/technology changes/poor business model/macro economics being more of an issue). Imo, if you are really concerned about missing something painfully obvious in picking your own stocks, and starting out with a small bankroll, you might just be better off not worrying and not taking all the time trying to determine the unknowable about the few companies you are interested in. You could be (maybe) better off using your time now in your career and building up your investing monies in mutual funds. Maybe not as much fun, but maybe safer. Of course I don't know you, your interests/goals or risk tolerance or bankroll. So my opinions could be totally misplaced and wrong. (I've been wrong many, many times.) I guess I am just saying it's not been worth being overly concerned about missing something that could be "painfully obvious". (You asked for "any particular insight" and this is mine (just mine), based on my experience.)