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Herb Greenberg's 5 Simple Lessons

In case you didn't know, Herb Greenberg has retired from WSJ and Marketwatch to go into "private practice."

For his final column as a journo, he put together these 5 simple lessons for investors.      

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.

Sunday, May 25, 2008 | 09:00 AM | Permalink | Comments (5) | TrackBack (0)
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Comments

Lesson 6: When people on TV regale the genius of a CEO of a major corporation, such as Kenneth Lewis when Bank of America Got a 'great deal' on Countrywide, ignore it at best, short it if you can.

Posted by: VennData | May 25, 2008 11:39:29 AM

"It's an admission that you're gullible."

Because you are. This is the reason that "unblinded" scientific research is treated with suspicion bordering on contempt.

Regarding "The numbers don't lie" versus "treat GAAP with suspicion", there is no contradiction. The trick is to find out which true statement the numbers are actually making. (Which is all the harder if you are looking to verify the rosy predictions in the earnings call, rather than making your own predictions based on the numbers and fundamental considerations.)

Posted by: Chicken Boo | May 25, 2008 2:49:27 PM

"The numbers don't lie"

Ha ha ha. What a freakin' joke. This is planet Earth we're on, Herb - not heaven.

Posted by: Tom F. | May 25, 2008 3:22:46 PM

Numbers don't lie, but off balance sheet numbers don't speak at all.

Posted by: KnotRP | May 25, 2008 10:55:24 PM

I take exception with Lesson 1. The numbers don't lie.

It needs to be amended to the "real" numbers don't lie.

Unfortunately, in this day and age the real numbers are not what are always reported in financial statements: whether from outright fraud to beniegn interpretation.

Posted by: lars | May 26, 2008 1:31:20 AM