About the Book
Table of Contents:
Foreword. Introduction. Acknowledgments. 1. Sages and Charlatans: Avoiding the Fads, the Buzz, the Rip-Offs, and the Merely Dumb. If You Can't Understand, Don't Invest. Friends and Family Don't Like a Company's Products. A Product or Company Is Hyped by Wall Street, the Media, and Others. On Wall Street, the Game Is Usually Rigged Against the Small Investor. The Motivation of an Adviser Making a Recommendation Is Suspect. Price Means Everything: A Great Company's Stock May Be Too Expensive. Don't Get Caught Out by the Latest Fad; It Probably Won't Last. If You See Major Funds Are Shunning a Stock, There's Usually Good Reason. Avoid Companies That Are Too Reliant on One or Two of Anything. Diversify or Bust: Too Much Money in One Stock May Ruin You. Ejecting at the 11th Hour. A Company Files for Chapter 11 Bankruptcy Protection. The SEC Launches a Full-Scale Probe into Possible Securities Fraud. The CEO or Another Top Company Official Is Arrested. A Company's Shares Are Delisted by a Stock Market Such As the NYSE. A Company Does a Reverse Stock Split to Remain Listed. A Company Is Facing a Large Number of Class-Action Lawsuits. A Prominent Short Seller Has a Company in His or Her Sights. 2. Pipedreams and Big Lies. When You Find the Big Lie, Everything Else Crumbles Around It. A Whiz-Bang Device Is Loved by Tech-Geeks, but the Masses Are Unenthusiastic. The Technology Is Great, but Its Price Is Too High for the Mainstream. If a Technology Is Said to Transform the World, It Is Being Over-Hyped. Journalists Are Often Wrong in Predicting the Success of a Deal or Product. When Money Is Easy to Raise, Be Alert for Companies Doomed to Fail. A Product Is Only Set to Reach a Niche, but Hopes Are Ramped Higher. First Company to Market May Not Be the One to Succeed with a Product. Technology Becomes Obsolete and Companies Can Easily Burn Up. Be Wary of Chasing the Prices of IPOs Soon After They Start Trading. 3. The Superstar CEO: Celebrities, Showmen, and Destroyers. The Quitter: When a CEO Leaves without an Explanation. When There Is Family Control, the Rights of Others May Be Trampled On. Beware the Worst Combo of All: An Aggressive CEO and a Compliant CFO. The CEO Bullies Everyone. The CEO Hypes a Company's Performance and Prospects. A CEO Is Caught Making Misleading Statements. When a CEO Is Abusive, It May Be a Sign of Major Problems. A CEO Is Built Up As the New Star Who Is Going to Fix Everything. When Senior Management Includes the Company's Former Auditors. When the CEO Is Known Best for Destroying Jobs and Slashing Costs. A CEO Known Best As a Serial Acquirer Rather Than a Builder. A CEO Who Blames Others for a Company's Ills. An Executive with a Dubious History: Beware Repeat Offenders. When Executives Buy Homes in Bankruptcy Havens Such As Florida. 4. Jets, Parachutes, and Stealth Wealth: Pay for Performance or Pay for Plundering. CEO Compensation Is Not Linked Closely with Performance. When Stock Options Are Handed to Executives Like There's No Tomorrow. When Top Executives Own Very Little of Their Company's Stock. If a Company Rewards Failure by Re-Pricing Stock Options. If a Company Rewards Failure by Lowering Compensation-Linked Targets. Executives Making Money for Themselves from Company Business. When a Company Forgives Large Loans Made to Senior Executives. Big Payments Are Made to Executives for Their Work on a Takeover. When Boards Hand Out Massive Severance Packages to Failed Executives. Executives Retire with Huge Packages, Including Costly Perks. Companies with Golden Parachutes for Any Kind of Takeover. If a CEO Is Protected by a Contract Even if Convicted of a Crime. When a CEO's Perks Are Excessive and Costly. When a Company Pays for Private Jet Travel, Clubs, and Agents' Fees. If an Executive Is a Philanthropist with Shareholders' Money. When Executives Bail Out of Their Company's Stock. 5. Caffeine Badly Needed: Sleepy, Inept, and Tainted Boards. Sudden Unexplained Resignation of a Director from a Board. When the Board Rarely Meets. When "Independent Board" Means the CEO's Grocer Is a Director. Boards Lacking Outside Directors Who Are Respected Business Figures. Companies in Which the Chairman and the CEO Are the Same Person. Professional Directors Who Are Keener on Collecting Fees Than Aiding Shareholders. Boards That Have a Large Number of Long-Serving and Elderly Directors. Too Many Academics and Ex-Politicians May Lead to an Uncritical Board. A Compensation Committee in the CEO's Pocket Lacks Independence. Cross-Board Memberships Can Lead to Conflicts of Interest. Directors Who Don't Own Much of Their Company's Stock. When a Company Hits Low Points in Corporate Governance Rankings. Audit Committees That Don't Take Responsibility for Policing Auditors. 6. Growing Mushrooms: The Art of the Opaque, Sneaky, and Buried. A Press Release That Buries the Net Earnings Figure. A Press Release Begins with a Questionable Measurement of Profit. When the Earnings Table Is Produced in a Creative or Confusing Manner. If the Press Release Omits a Cash-Flow Statement or Balance Sheet. When the Company Treats One-Time Charges As if They Aren't Real Money. The Upbeat Tone of a CEO's Comments Is Not Matched by Performance. If a Company Has Had a History of Over-Optimistic Forecasts. A Company Doesn't Include Accounting Policy Details in Its Press Release. Stock Options Accounting Policy and Its Impact Are Not Fully Explained. Too Much of the Wrong Kind of Disclosure Can Bury Vital Information. When a Company Says It Has Changed Its Revenue Recognition Policies. Hidden Announcements of a Probe by the Government or a Regulator. Disclosure of Major Litigation Problems or Reserves for a Settlement. When a Board or CEO Treats an Annual Meeting with Contempt. When a Company Tries to Bury Bad News on or Just before a Holiday 110 When a Company Doesn't Hold Conference Calls. If a Call Is So Controlled That Probing Questions Are Not Addressed. When the Press Is Barred from an Annual Meeting. If a Company Delays Publishing Financial Results without Good Explanation. If a Normally Talkative Company Official Suddenly Clams Up. When Drug Companies Spin and Obfuscate the Results of Drug Trials. 7. Culture of Greed: Sports Stadiums, Shooting the Messenger, and Rank and Yank When a Company Abruptly Transforms Its Corporate Strategy. If a Company Fires a Whistleblower or Faces a Suit from a Whistleblower. A Company Cuts Research and Other Spending for the Future. A Company Doesn't Handle a Crisis Directly or Quickly and Allows It to Fester. A Company Hides Behind Anti-Takeover Devices and Ignores Votes to Change. When Companies Are Legally Incorporated in Unusual Places. A Company That Buys a Stadium, a Sports Team, or Their Naming Rights. The Edifice Complex: Lavish HQs Can Signal Waste and Excess. Companies That Treat Staff Ruthlessly May Signal a Screwed-Up Culture. Companies Confronting Rather Than Talking to Pressure Groups. When Unexplained Events Cast Doubt on an Entire Investment Story. 8. Earnings Tricks and Games: Manipulating the Numbers and "Creative" Fraud. Companies That Always Meet or Beat Earnings Expectations. The Use of One-Time Gains from Asset Sales to Reach Earnings Targets. When a One-Time Charge Becomes a Permanent Part of Results. Companies Dipping In and Out of Cookie Jar Reserves. Serial Acquirers Who Disguise Performance with the Next Big Deal. Using Aggressive Pension Fund Assumptions to Reach Earnings Targets. Companies That Talk of New Paradigm Measurements of Performance. Beware of Companies That Use Risky Stock Hedging Strategies. When Net Profit Is Rising but Cash Flow Is Declining or Negative. Now, a Contradictory Warning-Cash Flow Can Also Be Manipulated. A Company Grows Much Faster Than Its Rivals with No Clear Explanation. When Earnings Growth Is a Lot Faster Than Sales Growth. 9. Goosing, Stuffing, and Faking: Tricks of the Trade to Drive Revenue Up and Costs Down. Any Signs That Companies Are Reducing Costs by Capitalizing Them. When Companies Depreciate Assets over an Unrealistically Long Time. Fabrication Is Possible When a Company's Top Customers Don't Check Out. If a Company Pumps Out Too Many Goods in a Particular Period. When a Company Is Taking Longer to Convert Sales into Cash. Companies Bringing Forward Revenue from Longer-Term Contracts. Companies That Record Bogus Revenue Achieved through Swaps. Beware of Companies That Record the Entire Value of Trades As Their Revenue. Companies That Indulge in Barter Deals Should Raise Suspicions. When Companies Provide Vendor Financing, It Can Backfire. If Companies Use Their Own Assumptions to Assess the Value of Contracts. When Plane Makers Use Wrong Assumptions to Spread Project Costs. When Construction Companies Include Disputed Cost Overruns in Revenue. 10. Beyond Their Means: Balance Sheet Clues That May Stop You from Losing Your Shirt. If There Is Any Sign a Company Retains Risks from Off-Balance Sheet Items. Avoid Anyone Boasting About Using Financial Engineering to Reduce Debt. Rating Agencies Cut a Company's Long-Term Debt to Junk Status. A Rating Downgrade Triggers Obligations, Such As Debt Repayments. When a Company's Debt Levels Are Much Higher Than Those of Rivals. When a Company Has Large "Contingent" Liabilities. When Insurance Against Defaults on Bonds Goes through the Roof. A Company Whose Return on Capital Is Below Its Costs of Funding. When the Interest Coverage Ratio Drops Below One-to-One. When a Company Is Rapidly Burning through Its Cash. 11. Snakes and Ladders: Spinning, Flipping, and Walking through Wall Street's Walls. When an Analyst Doesn't Kick the Tires or Even Read a Company's Filings. If an Analyst Hypes a Stock or Uses Superlatives to Describe Management. When an Analyst's Estimates and Recommendations Often Don't Pan Out. When a Highly Reputable Analyst Cuts a Rating, It Is Often a Sell Signal. When an Analyst Stops Covering a Company without Notice. You Are Probably Behind Wall Street's Top Clients on Research News. Buying Hot IPOs After Trading Begins Is an Easy Way to Lose Your Shirt. 12. At the Scene of the Crime: Funds Became Part of the Happy Conspiracy. Your Mutual or Pension Fund Has Clear Conflicts of Interest. Funds That Won't Tell You How They Are Voting Your Shares at the Time of the Decision. Funds That Don't Issue Shareholding Information Every Month. Funds That Play Cloak and Dagger Games with Fund Managers' Identities. When a Fund Manager Quits Suddenly, Especially if No Clear Reason Is Given. When a Fund Management Firm Is Dropped by a Big Pension Fund. Lowered Ratings from Morningstar or Lipper. When a Fund Has a History of Moving Away from Its Advertised Intentions. When the Shareholder Letter Is Merely Used As a Sales Tool. Managers Who Divert Hot Stocks into One Fund at the Expense of Another. High Fees That Suck Up Returns, Especially in a Bear Market. Advertising That Boasts of Stellar Returns over a Short Period. 13. Where Were the Auditors? Counting Fictitious Beans. The Auditor Suddenly Resigns or Is Fired without a Good Explanation. The Auditor Questions Whether a Company Can Survive. A Company Restates Its Results. Companies That Answer Criticism by Stressing Compliance with Accounting Rules. When an Auditor's Record Suggests Lax Practices or Conflicts of Interest. If an Audit Committee Hints at Internal Conflicts or Accounting Concerns. If Management Doesn't Seem to Care Much About Internal Controls. If a Fraud Is Declared, Expect News to Get Grimmer As More Is Uncovered. A Warning from the New Auditor Watchdog. Beware of Accountants Who Are Promoters of the Latest Business Fad. 14. Media Munchkins and Masters: Separating Puff Piece Writers from Hard Diggers. If a Top Publication Exposes Dubious Accounting or Corporate Behavior. Magazine Covers and Awards Aren't an Aid to Smart Investing. Journalists Who Fail to Ask the Hard Question. Be Aware That Some Media Commentators Also Trade Stocks. Take Media Popularity Polls with More Than a Pinch of Salt. Speed Requirements Can Leave Reporters Open to Hoaxes. News Reports That Only Rely on Analysts Who Provide a Very Narrow View. Details of a News Report May Have Leaked Out Before Publication. 15. Abstention to Follow Addiction: When Disenchantment with Low Returns Hits Home. Appendix A. Tips for Handling Your Broker, Financial Adviser, or Financial Planner. Appendix B. A Glossary for Investor Survival. Index.
About the Author :
MARTIN HOWELL is editor-in-charge of Reuters equities coverage in North and South America. He has directed much of Reuters corporate news coverage in the United States in the past four years, including coverage of the Enron scandal, the Internet bubble, and Wall Street deception. For the past 18 years, he has written, reported, and edited business news throughout the United States, Europe, Asia, and Australasia, and managed news teams on all these continents. ABOUT REUTERS Reuters (www.reuters.com), the global information company, provides indispensable information tailored for professionals in the financial services, media, and corporate markets. Reuters information is trusted and drives decision making across the globe, based on the company's reputation for speed, accuracy, and independence. Reuters has 16,000 employees in 94 countries, including some 2,400 editorial staff in 197 bureaus serving about 130 countries, making it the world's largest international multimedia news agency.
