In the wake of the Bernie Madoff scandal (Clusterstock has some great coverage), the Satyam fraud, and whatever else lurks around the corner, investors have lost billions of dollars of investable assets at the hands of hucksters. While most investors shrug off fraud as improbable, there are those analysts who studiously work to uncover inconsistencies, lies, coverups and what-have-you to help others avoid such pitfalls. Avoidance is one way to play the game while others, like David Einhorn’s much publicized shorting of Lehman Brothers, may choose to outright bet on such firms’ downfalls by shorting the companies.
Whatever tack you take, here are 3 of the best sites around to help uncover the next big blowup:
footnoted.org:
Who runs it: Michelle Leder has been a pioneer financial blogger. footnoted.org was launched in August 2003 (here’s the first post) to coincide with the publication of Michelle’s first book, Financial Fine Print. As a freelance business journalist, her work has appeared in BusinessWeek, The New York Times, Portfolio and Slate, among others. You can catch her speaking at industry conferences, on CNBC and anywhere financial trouble is brewing.
What it’s good for: footnoted.org’s content takes various different forms from nuggets Michelle has gleaned by combing through financial statements. Occassionally, it can address some strange quirks like the fact that Warren Buffett’s son relies on ConAgra for his health insurance or how well convicted ex-Tyco managers’ portfolios are doing. Mostly, Michelle uproots excessive compensation agreements or even worse, company self-dealings which can be a sign of much greater problems under the covers. Here’s a link to a great article on how important footnotes are in financial statements and how to interpret them.
How to use the site: Try to avoid the next Enron, Worldcom, *fillintheblank*. For those more aggressive traders, some of the information uncovered on footnoted.org is truly actionable. In the hypersensitive investing climate we find ourselves in today, trust is not expected, it has to be earned and footnoted.org is definitely a great resource to research the next big blowup. While most of footnoted.org’s content has traditionally been free, the site has launched a premium pro service for those looking for more in-depth research. One good trade or avoiding one big fraud pays you back many times over.
Securities Docket:
Who runs it: Securities Docket (SD) is edited by Bruce Carton who is also the author of the SD Insider Column. Bruce is a former Senior Counsel with the SEC’s Division of Enforcement, as well as a former securities litigation partner with a top law firm. Learn more about Bruce in the short introductory video below:
[youtube=http://www.youtube.com/watch?v=f2IgD-7qCVs]
What it’s good for: Securities Docket digs deep to uncover valuable details in class action suits, SEC probes, and criminal investigations. Bruce combines a great mix of multimedia including a presence on Twitter (visit him here) and free webcasts including one held this first week of 2009 and an upcoming webcast on the state of the Madoff Scandal. Also, check out SD’s BlackBook, a compilation of valuable resources in the securities litigation and enforcement fields.
How to use the site: Use the tools to stay up to date on what’s starting to rot under the couch or use it to research existing companies you may have a position in to drill down on your holdings. This site is particularly useful for those owning stock and part of a class action suit.
10-Q Detective:
Who runs it: David Phillips has more than 25 years’ experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. 10QD is part of CNET’s BNET set of media properties.
What it’s good for: Like footnoted.org, 10-Q Detective sifts through SEC filings looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. David blogs daily and takes his research a step further by putting his findings into context vis-a-vis industry standards or trending, turning facts into small investment thesis like this nugget regarding the aging of US auto fleets and how that might benefit certain firms.
How to use the site: Definitely check the site out daily. With his background on Wall Street, David crafts his pieces from the perspective of an investor and doesn’t take a short-only bias. He’s on the lookout for overlooked information contained in financial reports that can help long-term investors owning the stock long as well.
use transcripts for context and nuance in financial communications
One last *footnote* of my own: I’ve spoken about the value of financial communications a lot on this site. I’ve also spoken about the value in quarterly conference calls held by most publicly traded firms. Not only do you get a chance to hear management spin results, but you also get a chance to ask or hear others asking management touch questions. It’s these unscripted, free-for-all Q&A sessions that contain boatloads of nuance, body-language and squirming. SeekingAlpha has an entirely free database of updated transcripts of these calls for thousands of companies. Definitely put a link to SeekingAlpha’s Transcript Center in your investing toolset along with these other sites.
