companies’ later writedowns, miscalculations, and strategic failures. Although I have been investing for several years now, I have to say that my knowledge of accounting has developed much more slowly than my knowledge of competitive dynamics and that accounting remains one of my weaker areas as an investor.
In an effort to expand my circle of competence, I want to take a look at Enron, Tyco, and WorldCom - the Holy Trinity of accounting scandals - from the vantage point of an investor during that time period. We all now “know” that Enron was a fraud, but what exactly was amiss with their financial statements? I have pulled up their 1998 - 2001 SEC filings in an effort to better understand what transpired, but I’m not sure I know exactly what I should be looking for.
Has anyone else undertaken this exercise? What are the red flags that I’m not seeing here? All I can say from my (admittedly cursory) review of their financials so far is that the company would belong in my “too hard” pile. What led smarter, wiser investors than me to the conclusion that their financial statements were likely manipulated?