Predators and Profits: 100+ Ways for Investors to Protect Their Nest Eggs

Title Page......Page 4
Praise Page......Page 2
© 2003 Reuters Published by Pearson Education, Inc.......Page 5
Dedication Page......Page 6
About the Author......Page 7
Contents......Page 8
Foreword......Page 18
Introduction......Page 24
Acknowledgments......Page 38
CHAPTER 1  Sages and Charlatans: Avoiding the Fads, the Buzz, the Rip-Offs, and the Merely Dumb......Page 40
If You Can’t Understand, Don’t Invest......Page 42
Friends and Family Don’t Like a Company’s Products......Page 43
A Product or Company Is Hyped by Wall Street, the Media, and Others......Page 44
On Wall Street, the Game Is Usually Rigged Against the Small Investor......Page 45
The Motivation of an Adviser Making a Recommendation Is Suspect......Page 46
Price Means Everything: A Great Company’s Stock May Be Too Expensive......Page 48
Don’t Get Caught Out by the Latest Fad; It Probably Won’t Last......Page 49
If You See Major Funds Are Shunning a Stock, There’s Usually Good Reason......Page 50
Avoid Companies That Are Too Reliant on One or Two of Anything......Page 51
Diversify or Bust: Too Much Money in One Stock May Ruin You......Page 52
A Company Files for Chapter 11 Bankruptcy Protection......Page 53
The SEC Launches a Full-Scale Probe into Possible Securities Fraud......Page 54
A Company’s Shares Are Delisted by a Stock Market Such As the NYSE......Page 55
A Company Is Facing a Large Number of Class-Action Lawsuits......Page 56
A Prominent Short Seller Has a Company in His or Her Sights......Page 57
CHAPTER 2  Pipedreams and Big Lies......Page 58
When You Find the Big Lie, Everything Else Crumbles Around It......Page 59
A Whiz-Bang Device Is Loved by Tech- Geeks, but the Masses Are Unenthusiastic......Page 62
The Technology Is Great, but Its Price Is Too High for the Mainstream......Page 63
If a Technology Is Said to Transform the World, It Is Being Over-Hyped......Page 64
Journalists Are Often Wrong in Predicting the Success of a Deal or Product......Page 65
When Money Is Easy to Raise, Be Alert for Companies Doomed to Fail......Page 67
A Product Is Only Set to Reach a Niche, but Hopes Are Ramped Higher......Page 68
First Company to Market May Not Be the One to Succeed with a Product......Page 69
Technology Becomes Obsolete and Companies Can Easily Burn Up......Page 70
Be Wary of Chasing the Prices of IPOs Soon After They Start Trading......Page 71
CHAPTER 3 The Superstar CEO: Celebrities, Showmen, and Destroyers......Page 74
The Quitter: When a CEO Leaves without an Explanation......Page 78
When There Is Family Control, the Rights of Others May Be Trampled On......Page 79
The CEO Bullies Everyone......Page 81
The CEO Hypes a Company’s Performance and Prospects......Page 82
A CEO Is Caught Making Misleading Statements......Page 83
When a CEO Is Abusive, It May Be a Sign of Major Problems......Page 84
A CEO Is Built Up As the New Star Who Is Going to Fix Everything......Page 85
When Senior Management Includes the Company’s Former Auditors......Page 86
When the CEO Is Known Best for Destroying Jobs and Slashing Costs......Page 87
A CEO Known Best As a Serial Acquirer Rather Than a Builder......Page 88
A CEO Who Blames Others for a Company’s Ills......Page 89
An Executive with a Dubious History: Beware Repeat Offenders......Page 90
When Executives Buy Homes in Bankruptcy Havens Such As Florida......Page 91
CHAPTER 4  Jets, Parachutes, and Stealth Wealth: Pay for Performance or Pay for Plundering......Page 94
CEO Compensation Is Not Linked Closely with Performance......Page 100
When Stock Options Are Handed to Executives Like There’s No Tomorrow......Page 101
When Top Executives Own Very Little of Their Company’s Stock......Page 103
If a Company Rewards Failure by Re-Pricing Stock Options......Page 104
Executives Making Money for Themselves from Company Business......Page 105
When a Company Forgives Large Loans Made to Senior Executives......Page 106
Big Payments Are Made to Executives for Their Work on a Takeover......Page 107
When Boards Hand Out Massive Severance Packages to Failed Executives......Page 108
Executives Retire with Huge Packages, Including Costly Perks......Page 110
If a CEO Is Protected by a Contract Even if Convicted of a Crime......Page 111
When a CEO’s Perks Are Excessive and Costly......Page 112
When a Company Pays for Private Jet Travel, Clubs, and Agents’ Fees......Page 113
If an Executive Is a Philanthropist with Shareholders’ Money......Page 114
When Executives Bail Out of Their Company’s Stock......Page 115
CHAPTER 5  Caffeine Badly Needed: Sleepy, Inept, and Tainted Boards......Page 118
Sudden Unexplained Resignation of a Director from a Board......Page 123
When “Independent Board” Means the CEO’s Grocer Is a Director......Page 124
Boards Lacking Outside Directors Who Are Respected Business Figures......Page 125
Companies in Which the Chairman and the CEO Are the Same Person......Page 127
Professional Directors Who Are Keener on Collecting Fees Than Aiding Shareholders......Page 128
Boards That Have a Large Number of Long-Serving and Elderly Directors......Page 129
A Compensation Committee in the CEO’s Pocket Lacks Independence......Page 130
Cross-Board Memberships Can Lead to Conflicts of Interest......Page 131
Directors Who Don’t Own Much of Their Company’s Stock......Page 132
When a Company Hits Low Points in Corporate Governance Rankings......Page 133
Audit Committees That Don’t Take Responsibility for Policing Auditors......Page 134
CHAPTER 6  Growing Mushrooms: The Art of the Opaque, Sneaky, and Buried......Page 138
A Press Release Begins with a Questionable Measurement of Profit......Page 140
If the Press Release Omits a Cash-Flow Statement or Balance Sheet......Page 141
The Upbeat Tone of a CEO’s Comments Is Not Matched by Performance......Page 142
A Company Doesn’t Include Accounting Policy Details in Its Press Release......Page 143
Too Much of the Wrong Kind of Disclosure Can Bury Vital Information......Page 144
Hidden Announcements of a Probe by the Government or a Regulator......Page 146
Disclosure of Major Litigation Problems or Reserves for a Settlement......Page 147
When a Board or CEO Treats an Annual Meeting with Contempt......Page 148
When a Company Tries to Bury Bad News on or Just before a Holiday......Page 149
If a Call Is So Controlled That Probing Questions Are Not Addressed......Page 150
If a Company Delays Publishing Financial Results without Good Explanation......Page 151
If a Normally Talkative Company Official Suddenly Clams Up......Page 152
CHAPTER 7  Culture of Greed: Sports Stadiums, Shooting the Messenger, and Rank and Yank......Page 156
If a Company Fires a Whistleblower or Faces a Suit from a Whistleblower......Page 157
A Company Cuts Research and Other Spending for the Future......Page 159
A Company Doesn’t Handle a Crisis Directly or Quickly and Allows It to Fester......Page 160
A Company Hides Behind Anti-Takeover Devices and Ignores Votes to Change......Page 161
When Companies Are Legally Incorporated in Unusual Places......Page 162
A Company That Buys a Stadium, a Sports Team, or Their Naming Rights......Page 163
The Edifice Complex: Lavish HQs Can Signal Waste and Excess......Page 164
Companies Confronting Rather Than Talking to Pressure Groups......Page 165
When Unexplained Events Cast Doubt on an Entire Investment Story......Page 167
CHAPTER 8  Earnings Tricks and Games: Manipulating the Numbers and “Creative” Fraud......Page 168
Companies That Always Meet or Beat Earnings Expectations......Page 174
The Use of One-Time Gains from Asset Sales to Reach Earnings Targets......Page 175
When a One-Time Charge Becomes a Permanent Part of Results......Page 177
Companies Dipping In and Out of Cookie Jar Reserves......Page 178
Serial Acquirers Who Disguise Performance with the Next Big Deal......Page 179
Using Aggressive Pension Fund Assumptions to Reach Earnings Targets......Page 180
Companies That Talk of New Paradigm Measurements of Performance......Page 182
Beware of Companies That Use Risky Stock Hedging Strategies......Page 183
When Net Profit Is Rising but Cash Flow Is Declining or Negative......Page 184
Now, a Contradictory Warning— Cash Flow Can Also Be Manipulated......Page 186
A Company Grows Much Faster Than Its Rivals with No Clear Explanation......Page 188
When Earnings Growth Is a Lot Faster Than Sales Growth......Page 189
CHAPTER 9  Goosing, Stuffing, and Faking: Tricks of the Trade to Drive Revenue Up and Costs Down......Page 190
Any Signs That Companies Are Reducing Costs by Capitalizing Them......Page 191
When Companies Depreciate Assets over an Unrealistically Long Time......Page 193
Fabrication Is Possible When a Company’s Top Customers Don’t Check Out......Page 194
If a Company Pumps Out Too Many Goods in a Particular Period......Page 195
When a Company Is Taking Longer to Convert Sales into Cash......Page 197
Companies Bringing Forward Revenue from Longer-Term Contracts......Page 198
Companies That Record Bogus Revenue Achieved through Swaps......Page 199
Companies That Indulge in Barter Deals Should Raise Suspicions......Page 201
When Companies Provide Vendor Financing, It Can Backfire......Page 202
If Companies Use Their Own Assumptions to Assess the Value of Contracts......Page 203
When Construction Companies Include Disputed Cost Overruns in Revenue......Page 204
CHAPTER 10  Beyond Their Means: Balance Sheet Clues That May Stop You from Losing Your Shirt......Page 206
If There Is Any Sign a Company Retains Risks from Off-Balance Sheet Items......Page 210
Avoid Anyone Boasting About Using Financial Engineering to Reduce Debt......Page 211
Rating Agencies Cut a Company’s Long- Term Debt to Junk Status......Page 213
A Rating Downgrade Triggers Obligations, Such As Debt Repayments......Page 214
When a Company Has Large “Contingent” Liabilities......Page 215
A Company Whose Return on Capital Is Below Its Costs of Funding......Page 216
When the Interest Coverage Ratio Drops Below One-to-One......Page 217
When a Company Is Rapidly Burning through Its Cash......Page 218
CHAPTER11  Snakes and Ladders: Spinning, Flipping, and Walking through Wall Street’s Walls chapter 11......Page 220
When an Analyst Doesn’t Kick the Tires or Even Read a Company’s Filings......Page 228
If an Analyst Hypes a Stock or Uses Superlatives to Describe Management......Page 230
When an Analyst’s Estimates and Recommendations Often Don’t Pan Out......Page 232
When a Highly Reputable Analyst Cuts a Rating, It Is Often a Sell Signal......Page 233
You Are Probably Behind Wall Street’s Top Clients on Research News......Page 234
Buying Hot IPOs After Trading Begins Is an Easy Way to Lose Your Shirt......Page 235
CHAPTER 12  At the Scene of the Crime: Funds Became Part of the Happy Conspiracy......Page 236
Your Mutual or Pension Fund Has Clear Conflicts of Interest......Page 243
Funds That Won’t Tell You How They Are Voting Your Shares at the Time of the Decision......Page 244
Funds That Don’t Issue Shareholding Information Every Month......Page 245
When a Fund Manager Quits Suddenly, Especially if No Clear Reason Is Given......Page 246
Lowered Ratings from Morningstar or Lipper......Page 247
When a Fund Has a History of Moving Away from Its Advertised Intentions......Page 249
Managers Who Divert Hot Stocks into One Fund at the Expense of Another......Page 250
High Fees That Suck Up Returns, Especially in a Bear Market......Page 251
Advertising That Boasts of Stellar Returns over a Short Period......Page 252
CHAPTER 13  Where Were the Auditors? Counting Fictitious Beans......Page 254
The Auditor Suddenly Resigns or Is Fired without a Good Explanation......Page 260
The Auditor Questions Whether a Company Can Survive......Page 261
A Company Restates Its Results......Page 262
Companies That Answer Criticism by Stressing Compliance with Accounting Rules......Page 263
If an Audit Committee Hints at Internal Conflicts or Accounting Concerns......Page 264
If a Fraud Is Declared, Expect News to Get Grimmer As More Is Uncovered......Page 265
A Warning from the New Auditor Watchdog......Page 266
Beware of Accountants Who Are Promoters of the Latest Business Fad......Page 267
CHAPTER 14  Media Munchkins and Masters: Separating Puff Piece Writers from Hard Diggers......Page 270
If a Top Publication Exposes Dubious Accounting or Corporate Behavior......Page 272
Magazine Covers and Awards Aren’t an Aid to Smart Investing......Page 273
Journalists Who Fail to Ask the Hard Question......Page 274
Be Aware That Some Media Commentators Also Trade Stocks......Page 275
Speed Requirements Can Leave Reporters Open to Hoaxes......Page 276
News Reports That Only Rely on Analysts Who Provide a Very Narrow View......Page 277
Details of a News Report May Have Leaked Out Before Publication......Page 278
CHAPTER 15  Abstention to Follow Addiction: When Disenchantment with Low Returns Hits Home......Page 280
Appendix A Tips for Handling Your Broker, Financial Adviser, or Financial Planner......Page 286
Appendix B A Glossary for Investor Survival......Page 290
Index......Page 299