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Enron files for Bankruptcy

Partners' Network Blog

Enron files for Bankruptcy

In his book MONEY: Master the Game, Tony Robbins dredges up the old Enron story, which I agree with, and want to call to your attention now.  Here is a brief listing copied from Tony’s book of the lauds Enron received right up until their bankruptcy filing.

Mar 21, 2001   Merrill Lynch recommends

Mar 29, 2001   Goldman Sacks recommends

Jun 8, 2001     J.P. Morgan recommends

Aug 15, 2001   Bank of America recommends

Oct 4, 2001     AG Edwards recommends

Oct 24, 2001   Lehman Brothers recommends

Nov 12, 2001  Prudential recommends

Nov 21, 2001  Goldman Sacks recommends (again)

Nov 29, 2001  Credit Suisse First Boston recommends

Dec 2, 2001    Enron files for Bankruptcy

Millions of Investors trusted these venerable firms and followed their recommendations.  A question I had at the time was, “How much work did they do before they made their recommendations?”  It could not have been too much since every recommendation was wrong.  Another observation is that many of the largest mutual funds had significant positions in Enron.

Now, let’s fast forward to today.  Has anything changed?  Were lessons learned?  Are more intensive analyses being done now before recommendations are made or additions to the mutual funds’ holdings?  I suggest that nothing has changed.  Examples are in the many recommendations to buy oil stocks a few months ago before a subsequent additional 35% drop.  Other recommendations are to buy intermediate term bond funds which provide cash flow less than inflation rates and are destined to drop as soon as interest rates increase, if they ever do.  It also seems many of the firms recommending these funds are incapable of offering viable alternatives.  Next, as Robbins points out, most actively managed mutual funds do not outperform the index they are trying to beat, yet management fees keep increasing.

Even today as we speak, brokerage firms recommend stocks they could not have researched carefully because they do not perform well at all.  Some picks can be wrong, but there are just too many and they could not be that stupid, so it indicates to me that they are simply not doing the work.  Enron redux!

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