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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8883  
Subject: Re: AT&T: Financial Shenanigans Date: 4/24/2013 11:20 AM
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I remember Value Line which I subscribed to for decades and dropped 2 yrs. ago, say that although Enron's accounting was complex, they still thought it was a good stock with a lot of growth potential. I owned Enron at the time and learned after it tanked that selling at the right time can be crucial to ones financial health.

Enron was a con. job and the principles ended up in jail. They fooled a lot of people, including the analyst at Value Line.

Enron was the exception. "Once bitten, twice shy" isn't just a platitude, it's human nature to shy away from something that might, even superficially, resemble something that caused pain or damage in the past. (Except of course, if it involves dating another leggy blonde because the previous one broke your heart and you just won't learn).

Most companies' financials aren't fiction, though some are photoshopped a little, so to speak, though usually not enough to fail a lie detector test. Having said that I wouldn't invest in a Chinese company, just in case. The Chinese fake designer handbags and they fake good balance sheets too.

As for Value Line, the most valuable thing, in my opinion, about the publication is the spreadsheet of each company's financials that cover the past decade and more. It's one-stop shopping. Their analysts should be taken with a grain of salt. They are not highly paid experts; they are not Warren Buffett! They are more like you and me, expressing their opinions based on company financials, news, and results. Then they try to connect the dots.

I think the most important thing is to look at the financials, whether that means really digging deep and reading 10Ks going back years, or scanning Value Line or Morningstar spreadsheets. If you have a bad feeling about a company, walk away, even if expert opinion and the crowd have a different take. Easier said than done.

A lesson I learned from experience. And yes, it involves Value Line. General Electric's huge debt burden always bothered me and I resisted buying shares for years. Value Line considered GE as safe as houses (an expression that should now be relegated to "ironic" given the burst housing bubble). They gave GE top marks for safety, earnings predictability, and financial strength. Not just Value Line, experts and lay folk alike. Finally the noise became too loud and at what I though was a good share price I caved in spite of my misgivings. The rest is history.

If you have a hunch, dig deeper, and if a company scares you, in spite of the phalanx of cheerleaders staring you down, walk away. Again: easier said than done.


On a related subject, with the significant upside the market has enjoyed over the last 18 months, recently I've started to kill a few weeds in my portfolios. Stocks with losses. Companies with stalled or deteriorating financials and business models. This, at least for me, is hard to do in a market that just won't quit. It's hard to see a stock I dumped a couple of weeks ago now sporting a share price that is 10% higher than when I sold it! It's hard to do because it's throwing in the towel. It's the end of the hope that company X will get it's act together and at least hand me my original stake back. But, my brain and my gut tell me it's the smart thing to do. (And, maybe I should take a long hard look at that "weed" GE. But… they're GE!, they bring good things to life).

kelbon
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