Investor crystal ball gazing
Filed in archive strategy by leon on May 15, 2008
With the credit squeeze and soaring energy prices, it's worth asking whether investors can see that far ahead. How do investors read trends and make the right calls?
Emory University academics ask the question: "Can investors and employees foresee their company's future?" The answer: don't bet on it. The problem, according to the folks there, is sorting out good information from bad. But the bigger issue, that's not talked about, is whether people actually have the ability to pick out the warning signs
.The paper, example, suggests looking at 10-Q, 10-K and 8-K financial disclosure documents. But how many investors would actually know how to read through them? And accounting rules, like fair value, can disguise the problem.
Other methods mentioned here, like monitoring any decline in a company's interest coverage, can also be problematic. Again, how many investors are that well-equipped to do that?
So can investors foresee their company's future? Potentially, they can if they know where to look. But most are unlikely to do that.
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