AGNC analysis of the income account> morals from foregoing examples

To the best of my present knowledge AGNC has not manipulated it earnings using accounting gimmicks; therefore, you don’t need to avoid it for those reasons alone.  If this is the first post of mine that you are reading, then please type AGNC into the search box near the top of the blog.  That search will return a list of article I’ve written on AGNC.

I have a feeling that I’m not to be as forgiving to AGNC when I examine its assets.  Most of its assets are agency securities that are probably worth a lot less than AGNC claims in their 10-K filings with the SEC.

If investors would have followed the advice below they would save themselves the misery of owning Enron and MCI World Com to name just a few epic failures.
Here is the relevant excerpt from Securities Analysis:

Be seeing you!


Moral Drawn from Foregoing Examples. A moral of considerable practical utility may be drawn from the United Cigar Stores example.  When an enterprise pursues questionable accounting policies, all its securities must be shunned by the investor, no matter how safe or attractive some of them may appear. This is well illustrated by United Cigar Stores Preferred, which made an exceedingly impressive statistical showing for many successive years but later narrowly escaped complete extinction.  Investors confronted with the strange bookkeeping detailed above might have reasoned that the issue was still perfectly sound, because, when the 
overstatement of earnings was corrected, the margin of safety remained more than ample. Such reasoning is fallacious. You cannot make a quantitative deduction to allow for an unscrupulous management; the only way to deal with such situations is to avoid them.
Published in: on October 5, 2010 at 9:37 pm  Leave a Comment  

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