Bless the Accountants
In response to a
piece here Monday that suggested that accounting doesn't matter in a bull market, bean counters (they
that expression) and their fans looked up from their ledgers long enough to fire of loads of missives.
- "Most tech types don't give a $%$*& about accounting, and most Ivy League MBAs cannot read a cash-flow statement, so they just ignore the accounting!" Ouch.
"It must have come as a puzzle to most when
Alan Greenspan opened his remarks to the
Kansas City Federal Reserve retreat at Jackson Hole with a little disquisition on how software expenses are to be accounted for, and used that as a springboard to suggest that earnings are being enhanced by creative accounting. As long as the market continues to be a popularity contest, such comments will appear quaint. At some point, however, they will be noticed."
The best, from a reader lamenting
Coca-Cola's (KO) long-held assertion that it should not consolidate results of its majority-owned bottlers because it does not "control" them: "Like my old uncle from Texas used to say: 'Son, you can piss on my boots, but don't tell me it's raining.'"
The comments that carried the most weight, however, came from
, president of the
Center for Financial Research & Analysis
in Rockville, Md., which, despite its academic-sounding name, is a for-profit investment boutique that focuses on finding companies whose accounting suggests future problems.
Schilit literally wrote the book on why accounting matters. It's called
Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports
. Schilit's book is something of a short-seller's handbook and should be required reading for chief financial officers as well.
Not surprisingly, Inspector Schilit takes issue with the assertion that the numbers don't count anymore.
"I don't agree that accounting matters little in a bull market," he writes. "Case in point: Last week a number of stocks
his organization warned about ... either collapsed completely or announced earnings disappointments." They include
Superior Consultant Holdings
Schilit turns shy when asked to supply names of companies he's examined that have yet to implode. After all, his clients pay big bucks for his research. However, one mole familiar with Schilit's thinking supplied Schilit's No. 1 cause for concern in CFRA's most recent report:
, which stood at 31 when Schilit addressed it and closed Thursday at 27 3/8 in the general tech-stock selloff. Compuware "may have received an artificial boost to reported earnings during the June quarter from its increased use of long-term financing arrangements," the report summarized.
Schilit's not perfect. He pegged video-conferencing leader
for accounting problems many points ago. But given the
controversy over Compuware, which supplies software applications for use with mainframe computers, this call bears watching. If Schilit's right, the accounting will matter.
Report From the Rodeo
Moderating a panel of tech-industry hotshots must be a little like attempting to corral a handful of bucking broncos (I have experience with the former, not the latter). Each can be powerful, ornery and unpredictable.
My panel Wednesday at the
Society of Business Editors and Writers
annual technology conference in Seattle attempted to get four Net stallions to answer the impossible question, "How do you value an Internet stock?" The movers and shakers:
CEO Peter Neupert, an 11-year veteran of
; Dan Levitan, co-founder of
, (the VC plaything of
investor Howard Schultz); Lise Buyer, sense-talking Internet analyst with
Credit Suisse First Boston
; and Owen Van Natta, who crafts and then manages
partnerships, which include the likes of Drugstore.com.
Readers will be shocked to know that the question never was answered. But the bigwigs channeled their energy into some interesting put-downs of friends and competitors alike. To wit, Buyer, an enthusiastic Amazon supporter, pointed out that Amazon's efforts at the auction business so far haven't held a candle to eBay's. Levitan socked it to his moderator by promising that 1999 revenue of privately held
, in which Maveron recently led a $26 million investment, will be greater than that of
. And Neupert, presumably a defender of online retailing in all shapes and forms, poked some holes in the strategy of
, the online grocery enterprise funded by a different VC
than the one that backs Drugstore.com. He also pointed out that while people buy a book only once, they buy the same tube of toothpaste over and over again. Amazon.com is a Drugstore.com investor, in addition to being a partner.
Most interesting insight: Buyer's belief that Foster City, Calif.-based Webvan, once it has succeeded in establishing goodwill with customers, will want to deliver all sorts of things to their homes besides groceries. (CSFB is not one of the seven -- count them, seven -- underwriters of Webvan's impending initial public offering that currently hopes to raise about $300 million. For more on that, see
thoughts under "red flag No. 5" on why one company needs more than three underwriters). And that led me to a simple but telling observation: Just as the word "book" never was in Amazon.com's name, there's no "grocery" in Webvan's. Sounds like Buyer's onto something.
Chartman (and Lashman) Revealed
Gary B. Smith's
many fans won't want to miss this weekend's "Chartman" segment on "TheStreet.com" on the
Fox News Channel
. That's because we're going to explore a painful moment from a past show where Gary B. predicted that a well-known stock would zig, but it subsequently zagged. Oh, and by the way, Gary's also going to take on one of my, er, miscalculations as well.
Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at