Thursday, July 31, 2008

Magical Mystery Accounting

As usual, Barry Ritholtz has some good points:
Just when you think there is a glimmer of hope that some of these ne'er do well, lying, cheating, sniveling, cowardly bank CEOs might finally be forced to step up to the confessional and tell all, this comes along: FASB Postpones Off-Balance-Sheet Rule for a Year.
There will eventually be a financial sector recovery, and some smart people will make loads of money off of it, but I'm afraid they will be smarter or luckier (or simply better connected) than I. Right now though, I can only imagine investing in some special case that I can actually understand, and I'm setting the understanding bar (understandably, given the eternal litany of writedowns) pretty high.

Question: How can anyone value a financial company if they cannot tell what are on their balance sheets?

Answer: You cannot. If you buy a financial under these conditions, you are flying blind.

Investment Thesis: Ritholtz Rule #1: Know What You Own.
Whoever buys Financials under these circumstances loses the right to whine down the road about companies not being forthcoming. If you own them, don't complain when you get what you deserve.

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