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Herb Greenberg's 5 Simple Rules

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.