Reminder: Even The Smart Money Makes Mistakes

[james.hendrickson]

This is making the rounds on the web, so I wanted to share it here.

Its a Goldman Sachs report on Enron. The report says Enron was still "best of the best". Its a nice example that sometimes the smart money can be very wrong some of the time.

For the younger or non-US members on the forums, at the beginning of 2001, it came out that Enron's financial condition was sustained by institutionalized, systematic, and creatively planned accounting fraud. Enron has since become synonymous with willful corporate fraud and corruption. The Enron situation also raised serious and long term questions about US corporate accounting practices and was a factor in the Sarbanes-Oxley act of 2002. The scandal also lead to the dissolution of Arthur-Anderson, the accounting firm which audited Enron's books.

[scfr]

And sometimes the dumb money gets lucky.
After my grandfather died, my mom who has no interest in owning equities (or investing or even saving for that matter) sold all of his shares of individual stocks and mutual funds. August 1997 ... 445 shares of Enron sold. Sheer dumb luck.
One of the interesting pieces of family financial history I unearthed sorting through the contents of my mom's storage units.

[james.hendrickson]

And sometimes the dumb money gets lucky.
After my grandfather died, my mom who has no interest in owning equities (or investing or even saving for that matter) sold all of his shares of individual stocks and mutual funds. August 1997 ... 445 shares of Enron sold. Sheer dumb luck.
One of the interesting pieces of family financial history I unearthed sorting through the contents of my mom's storage units.

Super lucky - those shares became worthless.

The actual paper stock certificates might have some collectable value, but otherwise...she totally lucked out.

[Jluke]

I don’t know the Enron timeline of events but was the smart money deceived?

[Singuy]

I don’t know the Enron timeline of events but was the smart money deceived?

Reading the note you get a sense that fraud has been alleged. Sometimes these analyst likes to pick a hill to die on.

For instance, JPmorgan Chase has a buy rating on Nikola even AFTER they have admitted their Fuel Cell truck in their promotional video was rolling down the hill while having a sell rating on Tesla since the beginning of time.

[james.hendrickson]

I don’t know the Enron timeline of events but was the smart money deceived?

jLuke, that's an open question. One has to assume that the Goldman analysts were being honest.

[Petunia 100]

But who was the report published for? It is clear that no one was doing their due diligence, as Enron's financial statements did not hold up to scrutiny. Arthur Anderson LLP was at fault for signing off on those audits, but any professional analyst should have caught the inconsistencies, and would have had they truly been doing their jobs.

I don't buy that Goldman Sachs believed a word of what is published in this report; they knew.