Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investing Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Money Management
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

Is Your Portfolio Sitting on an Earnings Torpedo?

September 7, 2017 By Jeremy Jones, CFA

In Today’s Financial Times, John Authers explains companies’ motivations behind manipulating earnings. With plenty of companies “managing” their earnings, it’s a concern that your portfolio may be sitting on what Authers calls an “earnings torpedo.”

“Within GAAP” manipulation involves dipping further into accruals than they would otherwise do, without resorting to outright fraud. After a while, even this will not work, and so they move on to fraud. In part this is driven by the asymmetric pressure from the market — the longer a company takes to come clean, the bigger and more damaging the “earnings torpedo” that hits its share price and its reputation once the true numbers come out.

The sample of companies includes only those who fell foul of accounting and auditing enforcement releases by the Securities and Exchange Commission, and therefore excludes a number of companies who were notorious for earnings management but managed not to progress beyond “within GAAP” manipulation. The list does, however, include names such as Coca-Cola and Microsoft, as well as more obvious miscreants like Enron.

What conclusions can we draw? For investors, the research should be yet another reminder of the importance of corporate governance. If your company allows too much power to reside in the hands of the chief executive, do not be surprised if they abuse that power.

Read more here.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Earnings Predictions Scare Investors
  • Nestlé Expands its Nutrition Portfolio
  • American Stocks Can’t Outrun the World Forever
  • Author
  • Recent Posts

Jeremy Jones, CFA

Jeremy Jones, CFA is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Jeremy is a contributing editor of youngresearch.com.

Latest posts by Jeremy Jones, CFA (see all)

  • Vanguard GNMA Outlook 2020 - December 4, 2019
  • The Biggest Problem for Warren’s Wealth Tax: The Constitution - December 3, 2019
  • Ginnie Mae (GNMA) Bond Yields - December 2, 2019

Search Young Research

Most Popular

  • Vanguard GNMA Outlook 2020
  • Procter & Gamble (PG) Stock: The Only True Dividend King
  • Rich Grandchild, Poor Grandchild
  • The Power of a Compound Interest Table
  • You Must Find Investments that Fit Your Needs
  • Potential Index Fund Component Loses 98%
  • Here's Why You Should Treat Your Disaster Cash like Gold
  • Is Your Cash Safe? Probably not This Safe
  • Ginnie Mae (GNMA) Bond Yields
  • Phone Scams are Getting Better: Here's How to Protect Yourself

DON’T MISS

Risk & Reward: An Efficient Frontier
The Highest Yielding S&P 500 Stocks
The Power of a Compound Interest Table
Is Gold a Good Long-term Investment?
How to Invest in Gold
You’ve Read the Last Intelligence Report, Now What?
For Investors who Want to Stop Worrying About a Market Crash
Dividend Kings: Are Dividend Kings the Best Dividend Stocks to Buy?
The Highest Yielding Dow Stocks
Vanguard Wellington (VWELX): The Original Balanced Fund
What is the Best Gold ETF for Investing and Trading?

RSS The Latest at Richardcyoung.com

  • When Will the Democrats Finally Pack It In?
  • Trump’s Tax Reform Makes America’s Competitiveness Great Again
  • Is Harvard Square, Cambridge Dead?
  • MS-13 in Northern Virginia
  • A Taste for Familiar, Family and Faith in God
  • Trump Leads US Economy to Longest Expansion in History
  • From Anonymous: “I Am Part of the Resistance”
  • America’s Silent Army with 423M Guns
  • Reboot American Families, Small Towns, Rural Areas
  • Trump Stops NATO from Making a Terrible Mistake

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Social Media

  • Facebook
  • Twitter
  • Youtube
  • Pinterest

Copyright © 2019 | Terms & Conditions

Young Research's Portfolio Strategy is packed with insight, analysis, and actionable advice on the global financial landscape. Sign up FREE to become a more confident, comfortable, successful long-term investor.

  • Top dividend strategies
  • Winning income investments
  • Retirement insights
  • Gold and precious metals analysis
  • The best sectors and regions to focus on now
  • And much more!

Start Your FREE Subscription Today!

x
loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.