I was interested in Fundamental analysis when I first learned trading. After the collapse of Enron and Worldcom, I was convinced that FA does have a problem. The a/c reports that people used to do FA may be jokes. And those a/c firms could use lots of tricks to make the reports look much better than it should be. I think the problem is not FA itself, it is the a/c guys who are making fun at us. It makes me to believe the old saying "charts don't lie". I add another one "accountants make fun at us"! When I hear people denounce TA, I would say FA is neither useful!
Who's reports are they in the first place? The accountants or the managements? I agree that there have been some high profile situations where the accountants involvement has been terrible and shameful. The problem is that these statements aren't the accountants, they are managements. No matter how hard you try to uncover fraud or misrepresentations, if management doesn't want you to find it, guess what, you aren't going to find it!!!! I've had upper management tell me that it was their job to hide it and my job to find it. You might find some of the items, but, not all. Remember this, an audit done correctly, DOESN"T GUARANTEE 100% accuracy of the financials. IMO, what happened at Enron and WCOM were terrible and the accountants level of knowledge or lack there of, into those items was significant. How you miss, what is it, 8 billion in Journal Entries like at WCOM is incredible. I worked for a Big 6 Accounting firm and we withdrew from more than a few engagements because the management wanted to do things that were questionable and couldn't be resolved. Some of the partners that work in the industry have a spine and others do not, looking only at the big billings going out the door to the client irregardless of the potential consequences. Sometimes what is right is more important than the $'s. The joke around most of the firms was "You can buy your opinion." The good partners don't let that joke gain ground in the industry. If you want to allow business to issue statements without any type of audit because a few have been done incorrectly and your distrust, god help you. You think enron and wcom were bad, wait until you get a look at what the management of most companies would want to issue. Those statements would be FULL of bad information do to management interest in stock incentives. Have a great day. Later, Cracked
In times past people used dividends for calculating stock price because dividends can't lie, at all. Accountants and managers and charts can lie somewhat but a dividend is in the bank. People replaced Earnings with EPS and a growth orientation and they have to depend on a lot of "liars" for sure. Max