Politicians are Excellent Investors!

A recent Georgia State University study concludes that Senators beat the market by an average of 12% a year. That is incredibly high for supposedly non full time non professional investors. In the Sep/Oct 2005 edition of Mother Jones Magazine, Sheila Kaplan covers a wide variety of eye popping items about political advantage. She even reports that the university authors credit the politicians with "a substantial informational advantage over ordinary investors"

Politicans should be able to invest. In order to maintain at least the semblance of fairness in the marketplace they should be required to report daily into a public data base what their buy and sell activity is. Transparency will go a long way to solving the problems. If we can track voting records, policy positions and travel habits the investor should know what elected politicans are buying and selling.

Financial Services Roundtable critical of SEC

Financial Services Roundtable is set to release a report critical of the SEC and past regulatory practices, reports The Hill. Now that we have a new Chairman they want him to review some of the past rulings. Cox is viewed by many as anti investor and some feel that perhaps he will remove some of the protections investors have won in recent past.

While the devil will be in the details and the fine print of the report there is an uneasy feeling that this group which represents 100 of the largest banks and securities traders will not be looking out for the retail small investor.

This news while not as exciting as the REFCO debacle is more important as it will influence long term policy decisions that affect and effect your pocketbook. Stay tuned.

Auditor Silence

American Institute of Chartered Public Accountants (AICPA) is circulating a draft white paper suggesting that "auditors remain silent during 'due diligence' meetings with underwriters before securities are sold to the public" reports www.webcpa.com.
This is outrageous and shows how the auditing community has lost its moral compass and common sense. Auditors are there to check for problems. If they find them they are supposed to point them out.
If they help pass one by an underwritier and foist a less than acceptable investment on the public then they are perpetrating a fraud.
The audit function is supposed to protect investors. During an underwriting process the investor as yet may not legally exist. so management has too much to say at this point.
Who really speaks for the investor?
Caveat emptor

Weekend Follies Oct 15-16, 2005

Weekend follies highlights publicly traded companies that have released substantive financial information at odd hours over the weekend. This weekends culprits that create financial skepticism are all from Nasdaq
Cybersource CYBS
First Franklin FFHS
AHPC Holdings GLOV
Altran ALTKF
Williams WMSI
Troy Group TROY (Pink Sheets) Troy was particularly lazy issuing a press release and telling everyone to look at their web site to get the real info. But no info in the press release.
Caveat Emptor

Spitzer vs Regulators

Eliott Spitzer has cut a wide swath across the US regulatory fabric. With the SEC and others asleep at the switch Spitzer has charged and convicted the high and mighty who have been stealing from the rest of us.
Lately the courts are saying that Spitzer overstepped his authority by chasing after banks who may be in violation of lending practices. My question is who is regulating the banks? Why does it take a state attorney general to do the heavy lifting.

Paid-for Research

The SEC is relaxing a previous position regarding paid-for research. The decision is problematic. On one hand paid -for research has a certain promotional aspect to it. On the other new companies are constantly desparate to attract analyst followings. But if share volumes are low analyst followings are near impossible to attract.
The proof in the pudding will be if the research is sufficiently branded as paid-for and will negative reports or less than glowing reports also have the same prominence.

Corporate Governance or Outright lies

Warren Buffet may have been misled by his own executives. Wells notices have been issued as former Berskshire Hathaway executives refuse to testify for fears of self-incrimination.
Buffet has a big reputation as an investor but perhaps something has slipped between the cup and the lip when he was managing. should he have known and be able to smell out the problem? If one of the smartest investors of all times can be duped what chance do the rest of us have.
Perhaps the real solution is in more oversight with wider and independent boards of directors actively vetting, instead of one man (godlike or not) do it all.

Auditing the Auditors

Google recently announced the appointment of Ms Shirley Tilgham Ph.d to the Board of Directors. She is also President of Princeton University and a Professor of Molecular Biology. The press release outlines her very substantial accomplishments in molecular biology and how Google is research based etc etc.
Come on Google. Why do you need a renowned professor of molecular biology on your board? Assuming this is a good appointment, and it probably is, perhaps its her connections as President of Princeton that make her attractive, including access to pools of capital and government contacts.
This raises the issue of Boards of Directors accountability and suitability. Does a deep and impressive background in molecular biology provide the necessary context to manage the corporate governance of Google. Or is she expected to wheel and deal as many corporate boards of directors are expected to. In that case who is watching the shop?

Corporate Noise Machine

Google recently announced the appointment of Ms Shirley Tilgham Ph.d to the Board of Directors. She is also President of Princeton University and a Professor of Molecular Biology. The press release outlines her very substantial accomplishments in molecular biology and how Google is research based etc etc.
Come on Google. Why do you need a renowned professor of molecular biology on your board? Assuming this is a good appointment, and it probably is, perhaps its her connections as President of Princeton that make her attractive, including access to pools of capital and government contacts.
This raises the issue of Boards of Directors accountability and suitability. Does a deep and impressive background in molecular biology provide the necessary context to manage the corporate governance of Google. Or is she expected to wheel and deal as many corporate boards of directors are expected to. In that case who is watching the shop?

Clean Teams?????

McKinsey Quarterly recent electronic edition covers a topic entitled clean teams. Companies considering a merger do not want to disclose certain competitive issues; requiring clean teams to scrub information and data; ensuring mission critical nuggets are not released.
If merger discussions progress sufficiently everyone needs to lift up their skirts. This ensures that adequate due diligence actually occurs. So the concept of a clean team achieves what? More professional fees in an fee frenzy environment.
I just do not feel safer if a clean team was at work. Sounds too much like specialist cleaners working for the CIA.
I would rather see regulatory agencies adjucating right on the spot, much like referrees in a sporting event. That would keep both sides honest.
If you trick the regulator you go to jail for fraud. Rather simple.

Weekend Follies Oct 1-2. 2005

Just when I think that no one will be sufficiently brazen, circumstances prove otherwise. The Monday post points fingers of financial skepticism at companies that issue substantive press releases during the weekends and sometimes during very odd hours on said weekend. The culprits for this weekend were:
Plantronics NYSE symbol PLT
Cognigen OTC BB symbol CGNW
Caveat emptor

Financial Signature

The CEO of a company has a financial signature that even he, his wife and perhaps his mother may not be aware of. The book entitled “The 3 Financial Styles of Very Successful Leaders” written by E. Ted Prince and published by McGraw Hill inspires this posting.

CEO’s and all individuals have management styles that make them suitable or less suitable for certain types or corporate challenges. Traditionally we have viewed them as either turn around artists, take over specialists, stodgy managers or whatnot. Ted Prince has developed another methodology that might help an investor select a company by thinking about the CEO and the management style that he will create.

Venture Capitalist. Do things the hard way. Finds products and services with high value. Lots of crash and burn.
Profiteer. Venture capital lite. Targets high but with few resources invested. Frequently reliable moneymaker.
Buccaneer. Targets high by taking a path no one else has figured out. Scary ride but if it works your ship comes in.
Conglomerator. Buys products and companies with high expenses that are not always offset by high profits.
Consolidator. Middle of the road type who buys good businesses, which are not commodities.
Arbitrageur. Looks for decent risk without huge gambles of capital. Looks to leverage low amounts of capital to make medium sized profits.
Mercantilist. Uses high levels of resources to maintain existing value of products. Will build an excellent sales force but will not improve the products value proposition.
Trader. Buys low and tries to make it on volume. Sometimes it works. Frequently it’s a matter of time and you get caught.
Discounter. Cut the price of your product. Reduce the cost inputs and hope to win. Never a thought on improving the product.
Ted Prince favors the buccaneers, profiteers and arbitrageurs. The book covers how to assess your CEO’s on these criteria’s and therefore assess your investments profit potential.

Cash is Fact. All else is an opinion

Main stream financial media increasingly reports that dividend paying stocks provide superior returns over some very long time frames (read ten years and more). Quelle surprise. It is impossible to argue with cash. Can the company pay the dividend; yes or no.
Dividends uncomplicate disclosure and governance issues. Many growth strategies are castles in the sky and near impossible to sustain. Management desparate to maintain grand illusions resorts to complex empire building strategems. Truth is frequently the first casualty of war. Disclosure also suffers the same.
As the baby boomers age they will need income, either directly or from their pension plans. That means reliable dividends. Tomorrow I will write about the Financial Signature of many CEO's and how it may affect your dividends.

Cox Recuses from Frist Controversy

The newly minted SEC Chairman has recused himself from the Frist controversy, the Washington Post reports. While this may be technically correct, the nations top securities law enforcer should be able to stay on the job for such a high profile case.
The SEC Chairman cannot be marginalized to deal with low level cases that amount to speeding ticket infractions. In the nominations process what attention was paid to potential conflicts of interest?
Chairman Cox was a Congressman for quite some time. Clearly some conflicts would manifest. Is Congress the appropriate talent pool for SEC Chairman? Will Chairman Cox give up part of his salary because he cannot do the job he was hired for?

Weekend Follies Sep 24-25

I reserve Monday's post to point fingers at those who issue press releases at strange weekend hours. I define the weekend as starting at 21:00 ET Friday to 06:00 ET Monday
This weekend I was abe to spot only two candidates for my skepticism. Kensington Resources (TSX Venture KRT) and Cardinal Resources PLC which trades on the Alternative Invesment Market on LSE. Cardinal also took the bizarre step of including some financial statements and the chairmans comments which where dated Sep 22 a full three days before the date of the release. Hmmm.
Caveat Emptor

CEO Excess

Now that several executives have been sentenced to significant jail time, one of the messages is clear. Over the top excessive entertainment is the kiss of death. Particularly when funded by the shareholders. As investors select potential investments any signs of expensive entertainment are now sure signs of executive rot. The trick will be in establishing corporate governance procedures to catch potential problems before the spending actually occurs. The challenge will be standards creep. As the good times roll the tendency is to have better parties. Then again if you have solid managers they should not be asking the shareholder for party money.