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Investing 101: Understand What, and Who, You're Buying


NEW YORK ( TheStreet) -- Warren Buffett once said, "If a business does well, the stock eventually follows."

It sounds simple enough, right? Except, the term "well" as described by Mr. Buffett is highly subjective. I'm not one to ever argue with Buffett's brand of logic. But I do recall that Enron was considered to be "doing well" until, of course, it wasn't. Shortly thereafter, the collapse of other "well-performing" titans like WorldCom, Lehman Brothers and Washington Mutual became cautionary tales.

It's true that Enron and the rest were clearly not as "well" as they painted themselves to be. But investors also had role to play in their own misfortune.

In every sector and industry I follow, one thing remains constant: Company executives will exploit any opportunity to make their businesses appear better than it actually is. At the same time, if there's bad news, rest assured that news will be either be buried in SEC filings or spun in a way to mask its severity. This is assuming the news is disclosed at all.

Certain CEOs have become celebrities. The days of hearing from them four times a year on quarterly reports have been replaced by real-time revelations on Twitter (TWTR) from the like of Tesla (TSLA) superstar CEO Elon Musk or Marissa Mayer, the glamorous Yahoo! (YHOO) CEO, defending her decisions via her company's platforms.

Don't forget, it was Reed Hastings, Netflix's (NFLX) CEO, who, by posting on his personal Facebook (FB) page, forced the hands of the SEC to adopt social media as a legitimate outlet for corporate disclosures. A new part of a CEO's job description is managing the fear and greed that comes with investing in their companies.

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