Educate Yourself - Enron Not The Only One

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Enron Not The Only One
by Charles B. Carlson, CFA
Dow Theory Forecasts

Although Enron gets all the ink, its stock is by no means alone in losing massive amounts of shareholder value over the last few years.

According to Investor's Business Daily newspaper, more than 1300 companies lost 90% or more of their value from their five-year highs.

That's right - more than 1300 companies are down some 90% from their five-year highs.

And keep in mind that most of these companies did nothing wrong, in the Enron sense. Indeed, many of these companies had no accounting shenanigans, no insider dealings, no high-octane shredders. The companies just got their clocks cleaned by a capitalistic system that shows no mercy for the weak, the stupid, and the arrogant.

So next time a politician wants to revamp "the system" to "protect" investors against the next Enron, don't buy it. You can't legislate out bad stock performance. And if you try, the solution could end up being worse than the problem.

Ironically, while every investor wants to avoid the next Enron, I think investors would make better decisions if they assumed that they won't avoid the next Enron. If you assume that you won't be able to dodge that bullet and that one of your portfolio holdings will end up being a big loser, I believe most investors would make better portfolio diversification decisions.

BUYandHOLD does not recommend any securities. The security mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy.

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