This story was originally published here.
In late 2010, one of our largest clients called us in a panic…
One of its biggest holdings, coffee maker Green Mountain Coffee, had just received a data request from the U.S. Securities and Exchange Commission (“SEC”) stating it was launching a formal investigation into the company's accounting.
Our client needed to know what to do… immediately. If the company was fraudulent, the stock could drop to zero – potentially wiping the fund out alongside other shareholders. But if Green Mountain's accounting was clean, the stock could experience a massive rally.
So my team and I went to work.
It's a poorly kept secret that most people on Wall Street have no idea how to analyze financial statements…
Most of the high-powered hedge-fund portfolio managers, analysts, or private-equity managing directors don't come from an accounting background.
They generally have experience in investment banking or consulting. Their job is to know the companies, the people, the players, and the industry inside and out.
Others are quantitative analysts – math pros who can bend numbers to yield the insights they're looking for. But most of these folks don't know the difference between earnings before interest, taxes, depreciation, and amortization (“EBITDA”)… net working capital… or deferred revenue. It isn't what they're paid to do.
When accounting questions come up, the reaction is, “It's all Greek to me.” That's why nine of the top 10 biggest money managers on the planet call up my team and me to help.
Back when I was an accountant, I was fortunate enough to study under two mentors who were literally the auditors to the auditors. They both were the authors of the GAAP Guide – what many consider the “bible of accounting.”
They helped teach me how to analyze the financial statements… but most important, how to analyze the people behind the financial statements.
So when we built our team of analysts in Manila, Philippines, we went out of our way to fill our staff with accountants – CPAs, or folks on track to become CPAs – who would understand not just what the financials were saying, but the background of the financials.
As such, our team is great at identifying when management may be playing games with the accounting – or finding “financial red flags,” as we call them.
And just as important, we're able to determine when management is being falsely accused.
While we have a strong accounting background, it's not just our team's understanding of the numbers that helps us identify questionable activity from management.
The truth is, finding management who plays games with the numbers doesn't often start or end with the accounting…
Editor's Note: Click here to keep reading.
Forget 2008: This Next American Bankruptcy Will Be Even Bigger
No one believed Porter Stansberry years ago when he said the world's largest mortgage bankers (Fannie Mae and Freddie Mac) would soon go bankrupt.
And no one believed him when he said GM would fall apart… or that the same would happen to General Growth Properties (America's biggest mall owner)… or that oil would fall from over $100 per barrel to less than $40 a barrel.
But in each case, that's exactly what happened.
And now Stansberry says something new and terrible is unfolding in America: We're all being told a “Big Lie” that's leading to a political event unlike anything we've seen in our country in more than 50 years.
Stansberry says there's a surprising twist to this event, which will dramatically affect you and your money. In fact, Stansberry says this looming crisis will threaten your way of life, whether you own a single stock or not.
Stansberry says this development, which is already underway thanks to COVID-19, will change everything about our normal way of life: where you vacation… where you send your kids or grandkids to school… how and where you shop… the way you protect your family and home.
You can read his written analysis, free of charge, on his website, right here…
Managing Director, Stansberry Research
P.S. Stansberry also says this is the REAL reason there's such a large gap between the ultra‐rich and everyone else in America today. More here…