I’m thinking especially about the dot-com bubble, where stock values were inflated by the market, and the accounting of more than one company was not too kosher. (I’m thinking of AOL, for instance, and even Cisco, if I remember correctly my somewhat recent reading about some of the history.) Did you detect much of this at the time, and how did it affect your stock choices and decisions to sell?
The current market seems quite different from that era, but I would expect that in future corrections and bear markets, companies whose questionable accounting was detected would get hit harder. That’s why I’ve looked at metrics like the Beneish M-ration, but it hasn’t seemed to be all that useful.
I’m asking now because I’m not quite the bull I was a year ago, and it’s leading my thoughts toward being more defensive. Of course, I wouldn’t want to invest in a company that indulges in questionable accounting at any time, but I happened to think about Andrew Left today, as well as your (and thanks to you, my) timely “escape” from Synchronoss.
I’m thinking especially about the dot-com bubble, where stock values were inflated by the market, and the accounting of more than one company was not too kosher. (I’m thinking of AOL, for instance, and even Cisco, if I remember correctly my somewhat recent reading about some of the history.) Did you detect much of this at the time, and how did it affect your stock choices and decisions to sell?
Wow Ed, I don’t know anything about accounting and I didn’t detect any bad accounting in the three I was mainly in (AOL, Yahoo, and Amazon). I just thought that going up $30 or $40 a day several days in a row was craziness for stocks at a couple of hundred times revenue, or some such foolishness, so I exited the internet stocks. A lot of luck was involved too.
Saul
Well, with our group here, maybe someone is good at that, and can add a useful filter to give us even better results.
It’s hard to predict when accounting misdeeds will become known and kill the share price, and you can get rich holding that stock in the meantime, but I personally wouldn’t want to take that risk, and would love to have an early warning. I felt that way even before reading Nassim Nicholas Taleb.