Maria Bartiromo - Use The News: How To Separate the Noise from the Investment Nuggets and Make Money in Any Economy

What Wall Street Means by
Market Fundamentals

How to Gauge Expectations
and Measure the Results

The Changing Nature
of Market-Moving News

Evaluating News from
Market Professionals

I n June 1995, Maria Bartiromo became the first reporter to broadcast daily from the floor of the New York Stock Exchange. In doing so, she broke new ground for journalists and, most significantly, set a new standard in reporting on financial markets. Maria is a true pioneer in bringing Wall Street to Main Street.

Maria offers a fresh and vibrant approach to financial journalism. Her unique and provocative style is surpassed only by her clear, thoughtful, and thorough presentation of market news and insights. Then, too, Marias drive for innovation and professionalism is exceeded only by her commitment to keeping the investing public informed. A simple approach perhaps, but one that has clearly been of great value to Americas 85 million investors.

The participation in todays market by an increasing number of investors has been fueled, in large part, by the equally dramatic increase in market information. Now 85 million strong, American investors are no longer casual bystanders. They demand and deserve the latest news and developments from financial markets and the enterprises in which they entrust their savings and futures. With access to more resources than ever, investors use the news to make highly informed, more knowledgeable investment decisions. Ultimately, this serves to boost investor confidence in our markets and contributes to the economic well-being of America and, increasingly, the world.

Richard A. Grasso

Chairman and CEO

New York Stock Exchange

T he world of investing has changed dramatically since this book was first published.

Use the News came out at the beginning of a recession that claimed more than one million jobs in 2001 alone. Then we were hit by the terrorist attacks of September 11th, which occurred barely ten minutes into my morning broadcast from the floor of the New York Stock Exchange, just two blocks away from the World Trade Center. A few weeks later, Enron, the seventh-largest company in America, declared bankruptcy in the midst of an accounting scandal that shook the investment community to its roots.

The mood of the markets has changed, for sure. Professional and individual investors alike have been humbled. They lost a lot of moneyand, unlike during the optimistic days of the roaring bull market, they werent going to make it back any time soon.

People are much more skeptical these daysof news from companies, news from auditors and rating agencies, and news from anyone pushing stocks, whether analysts or brokers. At the slightest hint of financial confusion, investors promptly punish the companys stock, driving down the market, increasing market volatility and further exacerbating mistrust of Wall Street.

Investors have become skeptical of news from the media and from independent watchdog organizations. Theyve even become skeptical of Alan Greenspan for his handling of the economic downturn. In short, theyve become skeptical of investing in general.

But while investors attitudes have changed, what hasnt changed is the fundamental forces that move the markets. What hasnt changed is the basic nature of news that you can use. The noise has changed, but not the news.

The noise has gotten much louder in the past year, making it even more difficult to sift out the news nuggets. Its hard to see clearly during this kind of maelstrom. Its hard enough to think clearly when youre caught in the emotional whirlpool generated by the events of the past year. No one can, which accounts for the seemingly illogical trading patterns that boost the Dow 100 points one day and then take it right back down the next. But if the events of the past year have taught any single lesson, its that its more important than ever to take the time and trouble to separate the nuggets of news from the overlying noise. At the end of the day, the current uncertainty and confusion over accounting and how companies recognize revenue in their quarterly reports is positive. The beauty of America is that there are naysayers. There are those who will stand up and raise their hand and say this doesnt look right.

Im not saying that it was easy to see through Enron. How did Enron, the seventh-largest company on the Fortune 500 list, manage to convince everyone that the company was as strong as Fort Knox? It hid $40 billion in debt scattered in thousands of limited partnerships that only showed up on the balance sheet as a series of cryptic footnotes. It allegedly hid billions of dollars of loans from Wall Street firms by counting them as financial hedges instead of debt. The partnerships were private, so they didnt need to disclose their balance sheets. Plenty of companies use hedging activity to protect themselves from volatile trading.

If Enron had disclosed the true nature of its debt, then credit-rating agencies, industry analysts, and investors would have known earlier that the company was riskier than it appeared. But it didnt have to.

Perhaps one of the most stunning revelations of the Enron debacle was that some of its accounting treatment conformed to existing recommendations from the Financial Accounting Standards Board, the nations accounting rule-maker. Clearly there were some issues where Enrons partnerships crossed the line of legalities; however, using outside partnerships to transfer debt and other liabilities to off-balance sheet partnerships is actually legal.

Thats not to excuse Arthur Andersen, the accounting firm responsible for auditing Enrons books. Such independent auditors are now being questioned about being independent at all. Some charge once again the conflict of interest issue, making it almost impossible for the auditing side of an accounting firm to remain independent in the face of huge fees being generated on the consulting side. In the case of Andersen this remains to be seen, however, since the investigation into Enron continues as I write this. We cannot judge exactly what went on until we hear from all of the principals.

Having said that, Enron, in my opinion, represents what may be the peak of an era now as infamous for conflict of interest as for skyrocketing stock prices fueled by the people who knowingly participated in that game: analysts of investment banks promoting companies that their firms solicited business from, accounting firms approving auditing statements that wouldnt rock the boat, and companies that let only a few top officials know what was really going on.

This era also reflected the sheer force of public opinion. While there were some isolated reporters and analysts who raised red flags and challenged Enrons practices, for the most part they were ignored as investors watched the stock soar yet higher. Even investors who had doubts couldnt justify them when a respected outside auditing firm signed off on the companys financial statements. By a combination of bravado and financial sleight of hand, the company managed to fool just about everyone from analysts to the media to investors. It even managed to fool its own employees.