Heading into the bottom of every decade cycle, highly geared corporations start crashing. The latest debacle, Enron in the US. And every cycle they seem to get bigggger.

If you stay long enough in the market, you get to see the cyclical nature of these events, and learn survival strategies to spot them early. Apart from the obvious (to some) knowledge that every boom is followed by bust, another way to help limit losses is a knowledge of charting, and even more so, the use and effective application of stop losses.

And it is even more critical these days, because our capitalist process is now more 'crony' than at any time in history. Made worse because it seems that no longer can we rely with absolute certainty on Auditors to bring accounting irregularities to light. This is a truly dreadful state of affairs for smaller investors.

I attach the Enron chart for your viewing pleasure, with a few notations. Following these stories helps learn those necessary survival tactics for the investment years ahead.

Some Enron observations;
- At the end of 2000 Enron reported debts of $10 billion. The bankruptcy filing listed them at $40 billion.

Over the previous 4 years, Enron overstated its earnings by half a billion dollars

- The Herald Tribune of Jan 11 highlights the Auditors, Arthur Anderson (AA) as 'having knowingly certified' these discrepancies. The last time AA was caught doing this they settled out of court to shareholders for $120 million (I believe Sunbeam was the company, of Al Dunlap fame)

- AA's audit fee to Enron, $50 million.

- Enron donated something like $20 million to various political campaigns and lobbyists, both Democrat and Republican, but mainly Republican.

- The US Justice Department is responsible for overseeing the public enquiry. Practically all of the nominated officials to this department have excused themselves from the case, citing conflict of interest from Enron connections and / or having received prior Enron donations. (The Justice Dept. !!)

- Capital Hill energy policy meetings (the Westminster system of government equivalent to such meetings is our ruling political party cabinet meetings) are held in secret. Enron employees sat in on these meetings.

So stop losses are crucial. But the even better solution is not to buy a down trending share in the first place. But as you can see from the chart, somebody does……

Enron - PDF