Predators and Profits: 100+ Ways for Investors to Protect Their Nest Eggs
by Martin Howell, John Bogle Hardcover: 304 pages
Publisher: Pearson Education; 1st edition (April 22, 2003)
Language: English
ISBN-10: 0131402447
ISBN-13: 978-0131402447
The theme of the book is investment protection and it covers quite a bit of ground. The author paints a background of the current state of the market system where an investor-and-organisation-orientated market is replaced by personal-greed-and-quick-profiting market. This can be seen be the in the trend of ballooning stock prices in comparison to company earnings.
Martin Howell exposes the trends and tricks in how investors can be cheated of their money. The book is U.S-oriented, highlighting famous examples like Worldcom, Enron. It also focuses on the Internet Bubble as an illustrative instance where stock prices can hit the ceiling even without any earnings. The number of red flags he assigns to each topic gives an indication on the severity of the outcome.
Admittedly, if an investor is to look into all the points Howell has thrown forth, we might not have enough time to even place our order for any stock. Don't read this book if you are a beginner. It would be a good book for supplementing a broader knowledge.
The main themes for investment-protection are summarized (the sub-points are contextually-relevant to my understanding and learning) as follows.
1. Fundamentals
* Invest in what you understand only
* Public's opinion of the company's product is a good indicator of it possible sales
* Look out for ballooning P/E ratios
* Avoid companies that are too reliant on too few aspects of its business (not diversified)
* Please diversify.
* Sudden change in corporate strategy is suspicious.
* Capital-developing funding is cut to boost profit earnings.
* A company that grows a lot faster than its rivals without apparent reason gives cause for concern.
* Higher debt levels than rivals.
2. CEOs and Board of Directors
* Avoid family-run businesses in general
* Aggressive and bullying CEO
* Excessive remuneration in times of loss is a warning indicator
* Top executive themselves own too little of the company's stock
* Board rarely meets
* Elderly, non-prominent executives, politicians or academics might not serve the company well.
3. Media
* "Pro Forma", "normalized" and "non-recurring" are key words to mean earnings before possible huge costs.
* Media can excessively hype up stocks but look out for reputable publications (Reuters, Fortune, Wall Street Journal) that gives contrarian views.
* Beware of analysts who summaries other reports than visiting the companies themselves.
* Sell when a rating is cut.
4. Accounting
* Auditor's opinion is an important indicator. Unexplained resignation or firing gives a huge cause for concern.
* Declaration of fraud would only uncover bleaker news in the following months. Recommended immediate sell.
* Confusing and lengthy financial statements can mislead investors.
* Pay attention to cash-flow despite increasing profits.
* Suspicious: Earnings growth is a lot faster than sales growth.
* Unreasonable depreciation can hide costs.
5. Others
* Managers who divert a hot stocks from one fund at the expense of another to boost ratings.
* Fund shareholder letters are used to solicit for more sales than to inform.
* If major funds avoid a particular stock, so should you.
* Sell when there's a fraud probe or a filing for bankruptcy protection
* Avoid stocks undergoing reverse-stock splits (especially to maintain their share price to be listed)
* A short-seller has the company in mind is a sell-sign.
* Don't chase IPOs after they start trading
* Rating agencies give good indicators of companies' debt.
