I spent most of yesterday in the basement conference room of the 410 Club. The 410 Club is located in the renown Wrigley Building, a beautiful piece of white architecture that sits on the Chicago River, next to where Donald Trump is building his newest creation (Trump Chicago — or whatever he is calling it these days, otherwise known as the former Sun-Times building) and across Michigan Avenue from the Chicago Tribune.
I spent the day at a investigative business journalism seminar run by the American Press Institute (www.businessjournalism.org). Michelle Leder (author of the book “Financial Fine Print: Uncovering a Company’s True Value” and host of the blog www.footnoted.org) spent the morning teaching business journalists how to figure out what a company is trying to say (or hide) in their annual reports. The book is designed to help investors figure out what a company is worth. From what I’ve read so far, it’s an excellent piece of work — very useful.
Some gems from her talk (and the book) include:
(1) Pay attention to the footnotes.
(2) If companies file with the SEC late on a Friday night or over the weekend, it probably means they’re trying to bury something.
(3) When a company bashes short sellers, it could be a sign of more serious problems ahead. (Michelle gave a GREAT example of this by relaying an incident that happened on an Enron call. Skilling apparently lost his temper and called a short seller an “asshole” — ah, but there were so many early warning signs that everyone missed.)
(4) Look carefully at companies that report big differences between their pro forma earnings and net income. Ask yourself what is the reason for the ap and then try to determine what expenses are being excluded.
(5) And here’s one of my favorites: Be wary of companies that seem to take “special” charges quarter after quarter or year after year. After all, as Michelle pointed out in her talk, if a company takes a special charge in each quarter for 20 quarters, what does a regular quarter look like?
On Michelle’s blog, she parses through the fine print of 10Ks, 8Ks, and other documents filed with the SEC. She keeps her eyes peeled for the unusual stuff. More than 10,000 people a day visit her blog.
You might want to join them.
April 4, 2006