Rogue Investing Report Issue 3

ROGUE INVESTING REPORT
Take control of your financial future!
Issue #3: May 13, 2002
Publisher: Mind Like Water, Inc.
http://www.rogueinvestor.com
newsletter@rogueinvestor.com

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Table of Contents
1. Feature Article: Did Enron Cause the California Energy Crisis?
2. Company Profile: Diebold (DBD)
3. Tip of the Month
4. Questions and Answers

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Feature Article: Did Enron Cause the California Energy Crisis?
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The Enron saga keeps getting deeper. Recent internal memos from the company now indicate that Enron may have amplified, or possibly even orchestrated, the energy crisis that California experienced in 2000.

The entire process started in the early 1990s, when Enron made large campaign contributions to the election campaigns of key California legislators. These elected officials, with the advice of Enron, then drafted legislation to deregulate the California Energy Market. The deregulation had an interesting twist, in that the price of energy to the California electricity consumer was fixed. At first this seemed like a great deal for everyone. Cheap power at a fixed cost for electricity users, and an unregulated market for electricity producers.

Unfortunately, Enron also saw a great way to exploit this system. First it bought large contracts of electricity at the fixed price from California. Then the company resold the electricity at a much higher price to other states that needed electricity and did not have a cap on the price they would pay for electricity.

In the short term, this created large profits for Enron without much fanfare. However, when demand for electricity in California started to exceed the supply, a problem developed. Electricity that was produced in California was being sold to other states, reducing the amount of electricity that was available in California. To meet demand, Enron resold the electricity that was actually produced in California back to California, but for a much higher cost than the fixed rate that was set for California users. Caught between a rock and a hard place, California utilities either had to buy electricity for a much higher price than they could sell it for, or ration power.

California utilities actually did both. First, the utilities rationed power, causing the blackouts and brownouts. Then, as pressure mounted, they started buying electricity high and selling low, eventually pushing the utilities to the brink of bankruptcy.

The Enron story emphasizes the importance of understanding your investments. When Enron was raking in the money during the 1990s, many mutual fund managers and individual investors blindly invested in Enron just because the company was making money. At one time Enron was in the top 10 of Fortune 500 companies, and a frequently recommended stock by many so called investing experts. However, almost no one could explain exactly how Enron made so much money. Vague comments like Enron sells energy contracts, or Enron trades energy futures often summed up the knowledge of Enron investors.

The verdict: As investors, it is our job to understand our investments. Unchecked, companies can use investor money to expand fraudulent business models. However, as informed investors we have the power to influence which corporations succeed and ultimately what world we live in.

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Company Profile: Diebold (DBD)
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The next time you visit your local ATM, think about investing your money instead of spending it. Diebold, the company that makes most ATMs, has been doing very well lately. Diebold recently exceeded earnings estimates and indicated that future business trends look favorable.

Diebold's wholly owned subsidiary, Diebold Election Systems, also recently won a $50 million contract with the State of Georgia to provide touch voting machines to replace the controversial voting system of paper ballots. More states are likely to follow suit. Overall, Diebold is a well managed, relatively unknown company that looks poised for solid growth over the next decade.

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Tip of the Month
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Look for companies that have an understandable business and a good reputation with their customers and business peers.

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Questions and Answers
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Diane Faile, Countryside, Kansas, asked: How should one's age factor into creating an investment portfolio?

Age is a huge factor in selecting investments. Many formulas have been proposed for factoring your age into investment selection. My favorite is to subtract your age from 100 and invest the remainder in the stock market. For example, if you are 40, a good rule of thumb is to have about 60 percent of your nest egg invested in the stock market. The remainder of your nest egg should be in more stable investments like bonds or mutual funds. If your tolerance for risk is high, you can invest more in the stock market. However, I never recommend investing any money in the stock market that you will need in five years or less. So if you are thinking about early retirement, get a five-year cushion started before you retire.

Next month's question: What are the best sources of free financial information on the Web?

If you have an investing question, email me at:
rogue_report@rogueinvestor.com/?subject=monthly_question.

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Disclaimer: There are no guarantees in investing. I make no assurances regarding the investment information presented in the Rogue Investing Report.

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