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 The
tale of the Enron
Bankruptcy should be a
sobering lesson for all investors.
Over the last decade, many professional money managers
considered Enron one of the top companies in America.
At one time, Enron’s market value was almost $100
billion and it was listed in the top 10 of Fortune 500
companies in America. Enron
was labeled by some of the business elite as “the most
innovative company in the world.”
However, in less than two months, Enron collapsed and
declared bankruptcy on December 2, 2001.
Enron now has the dubious distinction as the largest
public company ever to go bankrupt.
When you sift through the financial
wreckage, four important lessons can be learned from the Enron
disaster:
- You
cannot trust the recommendations of financial
professionals. Armies
of accountants, financial advisors and money managers
failed to report that Enron was coming apart at the seams.
Instead, many financial advisors were recommending
investors purchase Enron stock just two months before it
went bankrupt. Why?
Financial professionals are often the last group of
people that will recommend selling a stock.
In many cases, the company employing the financial
professional has established a business relationship with
the companies they recommend.
At a minimum, they often establish a professional
relationship with companies they recommend in order to
meet with key company officials, obtain detailed company
financial projections, and report on developments in the
company. The result: companies are often reluctant to be truthful,
especially if the news is bad, and financial advisors have
a vested business or personal relationship that makes it
hard to say negative things about the company.
- Pay
very close attention to company debt.
Over the past five years, Enron’s ratio of debt
to equity was rising at an alarming rate.
If a company has more debt than equity, do not
invest in the company.
- Do
not invest in companies you do not understand. Enron made money by using very complicated hedging
strategies to create a market to buy and sell energy
futures and other related financial instruments.
Their business model was so complicated that
independent accountants did not even recognize that
company insiders were illegally funneling money to
partnerships owned by the same company insiders.
Few people that invested in Enron actually
understood the company's business model.
If you don’t understand the business, don’t
invest in it.
- Diversify
your investments. The
news is full of people that have lost most of their
retirement money because they owned too much company stock.
Do not ever put more than 10 percent of your money
in any one company, regardless of whether you work at the
company or not.
- Make
your own investment decisions.
This is what Rogue Investing is all about.
Anyone that did a little research could have
recognized that Enron did not qualify as a sound
investment.
Successful investing follows common
sense! For more
information on how you can become a Rogue Investor, click on
the link below.
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