Window Dressing

When quarter-end rolls around, everybody wants to make things look nice. But new flowers in the window boxes can’t disguise rot that may be in the window casings.

At quarter-end, many public companies try to dress up their financials. They increase the amount of cash on hand, or pump up sales to show a better financial statement. Even blue-chip companies get caught in this trap.

Gillette is famous for having “stuffed” their customers with product by moving cases from one warehouse to another. When Warren Buffet showed up at noon one quarter-end he asked the loading dock foreman how it was going. The man replied that he couldn’t say, since by noon the quarter was only half over!

And that’s the lesson. Diligent investors look beyond the headline number to what’s going on inside a company. Channels may get stuffed, but the imbalance shows up somewhere else. They may be boring, but some of the juiciest tidbits in corporate America are buried in the financials.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T19:52:13+00:00 June 25th, 2008|Global Market Update|0 Comments

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