Books for your reading list

cg I recently completed two books worth mentioning. Confidence Game details the six-year battle between hedge fund manager Bill Ackman, of Pershing Square Capital Management, and monoline bond insurer MBIA. Bloomberg News reporter Christine Richard tells a gripping tale of perseverance of a short-seller against MBIA’s questionable accounting and excessive risk taking. It details the bond insurance business and how the risk taking increased during the housing boom. Most surprisingly, it details the personal attack waged against Bill Ackman and others by regulators and government officials, rather than addressing the issues raised.

fsp Fooling Some of the People All of the Time details the ongoing crusade of Greenlight Capital’s David Einhorn against Allied Capital, a publicly traded business development company (BDC). The saga begins when Mr. Einhorn makes a 2002 presentation at the Ira Sohn conference. For reference, you can still watch his presentation online. Much like the previous book, the personal attack waged against Mr. Einhorn by regulators and government officials is deeply disturbing. The company even goes as far as illegally pretexting his home and office telephone lines. David’s wife Cheryl is eventually fired from her job as an Editor at Barron’s as a result of his campaign against Allied.

I recommend investors read both books to learn how to indentify questionable accounting. Pay attention to the tactics management employs to counter-attack the claims made by their critics. Do they address the issues?  Or do they attack the messenger? These books raise many unanswered questions. Why did regulators investigate the short-sellers rather than the companies? Why are reporters unwilling to write critical reports? Why are analysts so quick to downplay the problems without investing anytime to understand the issues? Why are ex-regulators (think SEC) permitted to leave the agency and work at private firms only to exploit the flaws in the regulatory system? Can the agency effectively regulate colleagues? 

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