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
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
- 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
- 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
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