Rational Investing: Media attack easy targets in stock-market scandals

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Clark Davis is a 30-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.|ret||ret||tab|

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Poor Martha Stewart. Everyone's picking on her. Bet the guys at WorldCom and Enron appreciate some of the spotlight being taken off them. (Does any one care about Global Crossing anymore? And what happened with Chandra Levy? Has Jesse Jackson found a church yet?)|ret||ret||tab|

In the scheme of things, Martha's transgression is pretty minor at least relative to those of the principals in the aforementioned debacles. Problem for her is attitude hers and the media's.|ret||ret||tab|

As for me, if you could see the clutter on my desk or the way I decorate for the holidays, you'd know why I don't watch her television show or read her articles. The woman is a threat to male disorder and expediency. Has she ever said, "That's not a good thing?" Bet she would if she peeked into our family room and saw me setting my lunch on the table in front of the television and watching the Cardinals while using ("Oh, my goodness!") a jagged piece of paper towel instead of a lotus-fold linen napkin.|ret||ret||tab|

Well, anyway, the media have jumped all over this situation, and while there is much that I don't know about the details of her selling the Imclone shares, I do have a strong suspicion that her early experience as a broker caused her to think that simply saying that she had a verbal stop order in would satisfy the press. |ret||ret||tab|

But n-o-o-o-o, those folks are dogged in their pursuit of truth/scandal! Nothing like bringing down a major personality, who (whether I like her or not and why doesn't she get that hair out of her eyes?) is one of the most successful businesspersons of this era.|ret||ret||tab|

So television, magazines and newspapers tossed her into the same bucket as the chief executive officers and others who fraudulently cooked the books while selling their holdings and leaving the average investor in the dark with big losses. And you know why? Because what she did is easier to understand than the big corporations' accounting irregularities.|ret||ret||tab|

It's going to take one helluva lawyer to get her out of this one. And it's going to take a giant phalanx of forensic accountants and a bevy of barristers to unravel all the financial machinations of the likes of Enron, et al. So expect poor beleaguered Martha to be in the press and the topic of discussion by the talking-head experts from 60 Minutes, 20/20 and Entertainment Tonight. |ret||ret||tab|

In the meantime, liberals will cry "political cover-up" because the complexities of the Enron and WorldCom situations will have caused the mills of the gods to grind exceedingly slow. (But remember "they grind exceedingly fine.")|ret||ret||tab|

Fact is, all the laws in the world created by all the wisdom of Congress won't stop fraud. By its very definition it is an illegal act. So they passed the Sarbannes Bill and required the CEOs of America's largest companies to certify that the company financial statements are correct and the CEOs, in turn, will demand the same of upper management, which will demand the same of middle management, which will demand the same of lower management, which will ask the janitor if he really did drop his quarter in the honors jug beside the coffee pot. |ret||ret||tab|

If someone wants to cheat at any level it can be done and is done every day. It's called human nature. There are those who will always look for a way around the rules in order to receive an unearned benefit. No matter the business; no matter the organization. I even knew a man who embezzled thousands of dollars from the Methodist Church in the Hyde Park area of Chicago. (Unfortunately, he was a great-uncle, but that's a story for another time.)|ret||ret||tab|

Sure, the laws will discourage some, but what kind, and how much, of a deterrent would it take to insure the absence of fraud? A recent survey at an Ivy League university asked students in an MBA class if they would be willing to go to prison for fraud for five years for $20 million. The preponderance said "yes." (And those are our future leaders?)|ret||ret||tab|

Laws may help, but of greater value to investors will be the research firms that keenly analyze financial statements, ask penetrating questions, do not provide corporate finance services, and give earnings reports and projections based on core earnings, not pro forma earnings or earnings that include extraordinary items.|ret||ret||tab|

Net results? Investors will be better served by the businesses whose livelihoods depend on providing accurate and beneficial research than by politicians whose jobs depend on catering to the outcry of the media and the uninformed among us. |ret||ret||tab|

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