TRUE LIES
(What Raju owned up to)
* Inflated cash and bank balances of Rs 5,040 crore
* Non-existent accrued interest of Rs 376 crore
* Understated liabilities of Rs 1,230 crore on account of funds arranged by Raju
* Overstated debtor position of Rs 490 crore
* Q2 ‘08-09 profit stated as Rs 2,700 crore and operating margin of 24% revenues. Actuals: Rs 2,112 crore profit and 3% of revenues
* Profits inflated over “last several years”; attained unmanageable levels as company grew
* Aborted Maytas deal was “an attempt to fill the fictitious assets with real ones”
Source: Business Standard
Buffet: "Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing."
My Comments: Satyam and Madoff: Both these cases are high profile and one would reckon that investors were privy to extensive information. All major brokers covered Satyam and big institutional investors owned the stock. Henry Kauffman – a Wall Street legend – lost money in Madoff’s Ponzi scheme aside from several other prominent people.
I do not want to sound cynical. But if a company like Satyam could pull-off such a scam, what do we really know about those obscure small caps?
This is a lesson for all of us - "proud stock pickers" - who can rant indefinitely about our ability to read company managements.
Diversification is important because may be we are ignorant.
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