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.
Great stuff, Herb. Good luck in the new venture — and if you ever feel the need to vent or want an outlet for us proles, the floor is always open for you . . .



Parting advice:
After 34 years of covering business, five simple lessons
Herb Greenberg
MarketWatch, 7:49 p.m. EDT April 27, 2008

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What's been said:

Discussions found on the web:
  1. VennData commented on May 25

    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.

  2. Karl K commented on May 25

    Herb’s a smart guy, but some of these rules are superficial at best, silly at worst.

    Not talking to people who run the company because they can somehow snooker you? It’s an admission that you’re gullible. Bad rule.

    “Numbers don’t lie” but watch out for GAAP numbers that “have plenty of gray areas?” A couple of incoherent and contradictory rules.

    The “real story” in on balance sheets? Rally? Oh, I forgot, there are those “GAAP gray areas.”

    These rules are akin to “keep your nose clean and stay out of trouble, kid.” They are not helpful.

  3. Chicken Boo commented on May 25

    “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.)

  4. Tom F. commented on May 25

    “The numbers don’t lie”

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

  5. KnotRP commented on May 25

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

  6. lars commented on May 26

    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.

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