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Herb Greenberg's 5 Simple Rules

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May 25, 2008 – Comments (3)

 These are 5 simple lessons from Herb Greenberg.  This is good advice and I could get into a major rant about how businesses use this stuff to mislead.  I just took this right off Big Picture.

 

Lesson No. 1: The numbers don't lie.
That is why some short sellers and forensic analysts don't like to talk to companies. They want to avoid the spin or the face-to-face meeting that can create a psychological connection that may skew what otherwise would be black-and-white analysis.

Lesson No. 2: Quality, not quantity.
Ignore the "beat the Street" headlines on earnings. It is what goes into the earnings that counts. The real story is often on the balance sheet, and the cash-flow statement. The more complex and convoluted the financial statements get, the more reason to worry.            

Lesson No. 3: GAAP isn't the same as a Good Housekeeping seal.
Generally Accepted Accounting Principles include plenty of gray areas -- GAAP is subject to interpretation.  Just because its legal doesn't mean the results aren't lousy.            

Lesson No. 4: Don't confuse stocks and companies.
They sometimes go in opposite directions. Stocks sometimes do lie. They can be pushed artificially higher by rotation, by short squeezes, by momentum.
           

Lesson No. 5: Risk isn't a four-letter word. Before you buy, instead of asking how much you can make, ask how much you can lose.

3 Comments – Post Your Own

#1) On May 25, 2008 at 1:23 PM, IBleedConcrete (95.55) wrote:

Good post.

One comment - sure the numbers don't lie (except when the people who write them do), but they are not the whole story of the company either.  While in practice many intelligent investors may find it convenient to focus exclusively on the income statement, I find actively ignoring information hard to justify on a theoretical basis.  How can forensic analysts ever be sure that the questions they did not ask are not material?

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#2) On May 25, 2008 at 4:24 PM, dwot (97.03) wrote:

I questioned the numbers one as well.  The numbers can be manipulated.  If you do your homework around them then it isn't too bad.

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#3) On May 25, 2008 at 10:45 PM, abitare (58.10) wrote:

Here is Herb talking about CFC and CEO Mozillo. He seems honest.

 

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