How can investors protect themselves from white collar crimes? Here are tips from three diverse sources: Michelle Leder, author of Financial Fine Print and founder of Footnoted.com; Joan Pastor, psychologist and chief executive of JPA International Inc.; and Sam E. Antar, convicted felon and former chief financial officer of his defunct family business, Crazy Eddie. One thing all three can agree on: Be skeptical about financial analysts, because they can be biased in favor of the company.
Tips from Leder:
Be wary of publicly traded companies that are still run like family businesses. It could mean sweet deals for insiders, but bad deals for investors.
Check to see if pensions are overfunded or underfunded. Overfunded plans can pump up net income. Underfunded plans can be a drag on future earnings.
Be wary of companies that take “special” charges from quarter to quarter or year after year. It can mean a company is trying to write off bad business decisions.
Tips from Pastor:
Pick an industry and become an expert in it.
Look for companies with brilliant people at the top who aren’t afraid to surround themselves with smarter people.
Be wary of companies with high turnover.
Tips from Antar:
Study financial statements over time to find patterns of inconsistencies.
Study financials quantitatively -- the numbers -- and qualitatively -- the footnotes.
Look for subtle inconsistencies rather than outright lies, and look for them not only in financial statements but in trade journals, newspapers, blogs, and other documents.
Nice tips, Sherri. While it's easy to read strategies like these and say "well, of course!" because they seem rooted in common sense, it takes a reminder to actually remember them, doesn't it?
I think it makes sense to "Look for subtle inconsistencies rather than outright lies." Most execs are smart enough (OK - we'll exclude the Yahoo CEO) to keep from making a direct false statement, but many of them get tripped up in exaggerations and overly optimistic projections.
I like the advice given by Antar best. Who would have ever thought how important reading foot notes could be? He's right about keeping an eye out for possible inconsistencies.
I like the consensus warning about financial analysts. When analysts say buy, I usually sell,
@cat tail, that is a very risky strategy. You never know when the financial analysts are lieing. I think the best method is to study the stock fundamentals yourself before taking any investment call and just ignore the analysts advice because most of the time they are biased.
I'm engaging in a certain amount of hyperbole here, yalanand. But my point is I always grow skeptical when the analysts start leaning one way or another...I always feel they have ulterior motives.
:) Bargain Bin! Yep, me too.. I also like to balance what I read in financial publications against real life conversations or real life experiences. I mean, it makes a lot more sense to consider Buffalo Wild Wings if you've gone there with your friends four weeks in a row, amd everyone seems pretty happy with the place.
You asked a great question. I guess the best answer to that question is one tip from Pastor "Pick an industry and become an expert in it." Unfortunately, it's not that easy for our average investors to become an expert in any industry.
@Sherri, thanks for this informative post. Really good compilation of investment advices.Could you please explain why should investors be wary of companies with high turnover ?
The blogs and comments posted on Investor Uprising do not reflect the views of Investor Uprising, PRNewswire, or its sponsors. Investor Uprising, PRNewswire, and its sponsors do not assume responsibility for any comments, claims, or opinions made by authors and bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
To save this item to your list of favorite Investor Uprising content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Tweet This