Management Opacity Leads to Poor Share Performance
Investors in companies whose management has been opaque and misleading to its shareholders in an effort to mask problems continue to be rewarded with poor performance, according to Audit Integrity. What’s more, “in most cases, management avoided any punishment – or, in fact, reaped massive bonuses while shareholders suffered a loss,” Audit Integrity Chairman James. A Kaplan writes in his latest “Chairman’s Corner” letter.
Within 3 to 9 months of being added, nearly a third of the companies on Audit Integrity’s WatchList saw a price decline of 30% or more. “These terrible results occurred over market conditions that were somewhat volatile, but trended upward overall” Kaplan writes.
What an unmitigated disaster for those investors who failed to include management integrity in their decision-making process!
The criterion for inclusion in the monthly WatchList is an Equity Factor score of 1, which identifies companies rated in the lowest 5% of all Audit integrity AGR® rankings. These companies were expected to under perform peers over the 3 to 9 months following the date listed.
Audit Integrity’s WatchList of 122 securities represents a broad cross-section of the overall market, including multiple industry sectors, all market capitalizations, and a range of valuations.
The current list includes many big names, such as Adobe Systems, AMD, Citigroup, ConAgra, Duke Energy, Del Monte, eBay, Nortel, Saks, and Sotheby’s and even seemingly bulletproof companies such as GE and Google.
Not all companies on the list will perform poorly, Kaplan notes, but as the adage goes, “That’s the way to bet.”
If you lie down with dogs, you can expect to wake up with fleas.
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