so today's talk is called and he was it was billed as is there an enron in your portfolio i've since opted the title two and i need to give you guys some handouts of those you they just walked in is that i've up to two financial shenanigans is there an enron in your portfolio and the reason i gave that title is we're going to feature sort of something you can read at home if you want to follow up this discussion is and i use this as an outline is this was a book that was assigned to me in grad school but it's a financial shenanigans by hardshell it and he goes through the common accounting gimmicks that companies use when they are trying to make their situation look better than it is where they're just in some cases minor situations where they just want to slowly smooth the results moving is a very common it's a it's probably a low low end type of manipulation all the way to we're trying to cover up a serious problem i am actually i run a family office type of financial planning firm where we focus on intergenerational financial planning strategies and but i do have obviously an interest in the markets and  common academic standpoint i find it very interesting it's frustrating at times but also very interesting so hence we do a talk like this the purpose of today's talk all right is and again this is in since the program coordinator here hartman had mentioned doing sort of a we had talked about maybe doing something along the lines of something i did before which is if you guys are familiar the learning in retirement institutes like a top sort of harvard and they run study groups where it's not somebody just preaching it's it's you sort of have a moderator or somebody who kind of leads the discussion  along a topic and everybody participates in and gets involved and learns so today i was hoping this would be somewhat of an introduction if we wanted to continue maybe in future sessions we'd get more granular and more dry this one i'm hoping to be not too long of a session not to drive but to give you an overview of the topic and if there is interest here whether through the people here today through the people watching on t v or through the newsletter people reading about it that they say you know what that's something i would like to go to a study group on a kind of just just out of fascination or so you either might be somebody who has a lot of your money in one company's stock and you want to find out to make sure they're running the show properly or get this could be a side amusement for you to look at the financials of companies and you find it interesting so either way that's what today's talks about now the idea of finding the enron in your portfolio he breaks it down into seven categories and you're going to see that a lot of this stuff just has to do with if you wanted to make it really simple you would say a lot of what he calls shenanigans or people just shifting things around it could be as is benign as shifting numbers around to say that you know we're going to we made this money sooner or later than we did or we incurred these expenses sooner or later than we did to something more aggressive like recording revenue than ever actually happened or you know outright type of fraudulent things so there's a full range of possible ways to do it and there's stuff that's been nine in and such that wouldn't get somebody probably potentially have a study group where we discuss these things and every couple of months we get together and for maybe a six month series or something and just talk of and discuss the stuff more in detail we all go home with a little bit of homework and come back and look at stuff maybe case studies but for now we're just the idea so let's look at these so there's a list seven groups and they're listed right in the first page number one recording revenue too soon or questionable revenue or number two which messed up on my printout here but should bogus revenue so as you can imagine recording revenue too soon might be a tad bit aggressive bogus revenue stream lee aggressive an illegal boosting income with one time gains we'll talk about that but that could be the sale of real estate it could be something to do in a merger and acquisition when somehow some immediate profit is is held but instead of separating that issue on the financial reports they include it with the general operating performance of the company which makes at least that quarter makes the company look pretty good so those those are those are two things neither one is boosting shifting current expenses to a later early period so just like you can shift revenue you can also shift expenses and i know some companies that they do that happens right now this stuff is going on constantly if any of you ever get the financial results of any company there's something called generally accepted accounting principles which some of you may be familiar with gap and it seems that every company these days not all of them but a lot of them use what's called pro forma results which is not generally accepted accounting principles they going to create their own thing because they feel their company is in the unique situation we're going to create our own metrics for you to follow so a common pro forma item might be just to exclude stock option expense you know we're doing great grew thirty percent well if you include the stock option expense you grew not at all which again you asked me before the talk started about you know financial analysis versus just looking at charts and things if you were purely going to be a financial person you're a businessman let's say you go and you buy you know you buy local businesses you buy real estate locally anything and your you put a spreadsheet together and say what's my rental income going to be or how many pieces of my you must sell this month and you know you would pay a certain amount for that business so if somebody came to us and i'm selling my pizza shop there's a certain limit to what you would pay for that business all right it seems though that in the world of stocks whether it's a good story or whatever or or it's the charts and people pay ungodly amounts for businesses so when you break down the column you know what they're actually earning what their revenue is their sales you look at certain companies i'm thinking of  one very large successful company that has customer relations management software is their main product i won't say their name and and they have so much stock option expense it seems like a nice up all the earnings growth every quarter now you know you know as a stock or you don't care as long as it's going up but as if you were a private business individual and you were going to buy that company with your cash the what you wouldn't you wouldn't do that so there are definitely standards when it comes to that  shifting current revenue to twelve failing to record or improperly reducing liabilities that's another one we'll talk about shifting current revenue to a later period as you some companies to do so well in the short term they want to spread that out so that you know because what's going to happen the stock will pop in the short term and then later on when things go back normal the stock will drop and you know maybe the executives stock options all mature at a certain date and we don't want to have bad results but right now right around that same time maybe we can manage these results massager smoothies earnings and then number seven shifting future expenses to current periods is a special card you see that a lot when there's a new c e o we'll talk about that if there's some been some pretty well known stories in the last twenty or thirty years that you might have all been familiar with because they made the main headlines where that happened but typically companies are either trying to improve our numbers or stuff up you might have people that actually earn revenue but they massage the books so that all that revenue is not recognized in the third quarter maybe they spread it out to the fourth quarter so when you say cook the books i'm not i'm not i'm not giving these people a it's really hard i think you have a situation like enron was for a few years where you know a lot of people on the team are involved because an auditor will come in and look at the numbers that the company gives them and if everything is matching up well meaning you know a lot of people on the team are keeping things the same it's hard for an auditor to spot that there have been some cases where you know there's been some misleading results and then the you know the c f o and the accounting people are also kind of shoddy about how they cheated so it's kind of easy to spot their mass because they just didn't they didn't do the fake books correctly they didn't have it all together was maybe a company like enron everybody was on the same ship they had a nice tight ship with their with the way they were doing things and therefore it's harder for the auditors to find that because they might not necessarily go dig they're going to take the numbers the company gives them and they're going to say these are matching up correctly great but they're not going in there and looking for for fraud it also means i might lose a big customer if they did that so i don't know they're  en you got mail the big thing as a bad thing or a big thing is you've got mail like they were everybody's email for like about three years he lost two or three million dollars in a o l stock you know in the heat and he was he was he wouldn't sell the stock after it had dropped he had just you know he was he was so bummed out about the whole thing you know i mean of course he look the obvious ones ok auditor reports and as you said the audit reports might when i tell you anything i think footnotes are a really great place to to look like if sometimes they want to tell you the ugly stuff that's not in you won't see a light read on the in the main print which is already small enough you'll see in the footnotes which is even smaller so it's important to look at footnotes if you're going to be one of these detective type folks   well for me when i think of long term i think of buying it for fundamental reasons you know necessarily price sensitive shorter term is more of a price trading strategy and it could you could own it for three years of it keeps going up or if it goes against you you might sell it next week so when i think of short term i think more of the mentality that i'm not married to this thing whereas long term i think of more of an investment where i'm buying it because i like the company i like what they're doing and i'm not so sensitive to the current understand it but yes yes big companies are pretty complex a lot to read there you're right i mean it can get tiring and that's why either you know you find a good  e when i mentioned earlier that you know i am not a broker i run a multigenerational family a family office financial planning firm and we find good money managers so i don't sit there you know my job is i serve the clients i coordinate the client's financial picture their taxes their investments their insurance their their real estate all their stuff and brand to gether i don't also sit there and analyze how people take to your point earlier the stock broker as an advisor i think is impossible how how can you analyze all these companies and also do sales full time because you're trying to get brokerage customers so there's a two job i don't know how people do it so that i i look for good money managers and i lead then and there are analysts who find a firm that's good at doing that and they will manage that portion of of my or my client's portfolio so the idea is i don't think i can do everything great and i think you know we're all old enough that if somebody says i can do everything great to probably not tell the truth or they're the you know one hundred million person maybe they can do everything great but even i know the most talented people in the world really focus on their specialty they don't do seventy five different things so therefore you know i find some of the can do that stuff i don't now if this is a hobby of yours and you like doing this stuff and then you have to do the reading if you're going to you know go down this road been maybe you need maybe maybe taking a class in accounting terms or at least like that could be helpful or as warren buffett says you know with his annual reports they very plainspoken if you're reading an annual port or a proxy statement or anything and it's difficult to read maybe you don't do business with a company you don't give them your money you don't invest in them and that's that's pretty much all you can do if  you find it's very confusing but that's a good point to bring up and the more confusing management is maybe the they don't even know what they're doing you know sewing and you get clues from that's a kind of clues you look for sometimes you know management very confusing i can understand maybe they want you to be confused because if you knew what was going on you might not like it i don't know so for you know it's a great thing because they'll put some of the stuff they don't really want to tell you in the small print in footnotes on the annual report and it's usually at the end so you're reading through like fifty pages of the of the financial they describe the financial ports it is like an asterisk and then you go to that fifty fiftieth's page out of like one hundred thirty and there's the footnotes on the on the on the income statement and then they page eighty as the footnotes on the balance sheet it's just it's not so easy to  not going to get caught for this this could be a software company let's say they have a software product that cost three million dollars and they bill it monthly but they're so they're only collecting a quarter million a month now well let's say it's not a contract let's say it's month to month the client's likely to keep it for so many months years whatever and the company decides to book the revenue all three million the day they sign the customer up so they'll put they collect to fifty for the first month and the other you know two point seven five million is coming but hasn't hasn't come yet so they'll book that is as revenue let me show you this the printouts i have here i b m is financial thing statements but for example  here's the balance sheet in the income in the income statement ok the income statement will show revenue of three million dollars now you won't see it here  income statement will show revenue of three million dollars on that deal we just talked about that software deal on the balance sheet only two hundred fifty thousand is counted as cash is all they received the other two point seven five million goes an item called accounts receivable which means they are expecting to receive it now as you can imagine you can get pretty aggressive with that if you wanted to let's say somebody signs of a five year  have for three years but they can break the contract is that really a three year deal and you should you record all that revenue if it wants you to record it monthly recording it all up at once might be considered a little bit aggressive all right and that's where you know she naming a number one recording revenue too soon and the economy slowing down our business is slowing down things are looking a little soft let's change our accounting to recording the revenue for the whole deal all of that once now what happens though is it makes that quarter look good but then they better fall of the next quarter with more or they're in trouble so maybe this quarter is the one where everybody's stock options expire and they want to give a little boost you don't know why why they do what they do that's a assuming a bad reason but recording revenue too soon is one thing you look for how do you see that will all of a sudden you know maybe in a footnote or in their report they say we're going to change our revenue recognition from monthly to you know all up front and they'll say that probably a little footnote or something that's a little red flag again some companies might be aggressive to may not mean they're trying to hide some kind of illegal activity they just might be trying to pad the numbers in the short term and then you have to obviously do further analysis  would look like if we did not change the revenue and here's what in they might have put that like in the back as an exhibit or something does it doesn't look so good you don't know so yeah they will show the numbers but they also might show how things would look if they did not make the change also which they should or they could i mean they might have a they might have an exception with some stuff if it's it was if it's looks normal they're not going to say this is bad it's just we're changing revenue recognition it's beginning more aggressive but i don't think something like that if it's if there's actual revenue coming in is going to cause too many red flags i mean you as an investor you might want to you might have an issue but to the actually people who just servicing the client over twelve months so they're not going to realize all the expenses of front that is realizing the revenue the expenses may continue monthly right at my dam i look different like i said each quarter now they have a task of beating each quarter now that they've changed the game they have to play the new game and again they may just be doing it for him i don't know why companies do this just but you know maybe someone tells them it's a way to to not look so bad but it happens you know so yeah the expenses are go they might they just might not say it the bad things so you didn't get the opinion letter at the end you might see the opinion letter on the report and say you know we've looked at these everything looks fine they may have a longer report summer and say you know they have to they have to the c e o and say you know what you're doing here is a bit aggressive but that may not show up on that letter on the you know the a the auditor statement letter but that's that's why you know also why we're going to look for this stuff because that stuff is seen as not so so bad that's why we have in the stock that's why that guy wrote the book some of this stuff is is not seen as such a bad thing to do financially to me usually doesn't end up well for the company but i mean it's not an illegal you know it's just now bogus revenue that would be something that you would hope an auditor would not sign off on this could be for example this is what you hear the term stuffing the channel typically if you have resellers so i have a product software anything you're my reseller for europe so i you know you sell my product in europe so i sell you fifty million dollars worth of the stuff you're not committed to it if you can sell it all you give it back to me but you're going to go and try to sell that fifty million worth of of my product in europe you're my european distributor but let's say that things says you don't have to sell it so i sold to i record fifty million of revenue selling it to you but you may have the chance of if you don't sell it all give me the stuff back i don't know that from just those numbers that twenty five million might be coming back next quarter than sell all right so that's a big issue and that's something that you see you do see a lot of you see actually see that a lot come with some sketchy with certain companies that is something that has popped up a lot and that is you know you see a lot with stuffing the channel in revenue no a lot of you see that a lot probably near the end of a cycle with  with technology components semiconductors and other chips and things like that as things can you know they they'll sometimes try to stop the channel kind of smooth out the you know the numbers they're just hoping that it's not the end of a of  you know of an economic surge they're hoping that you know this will you know we if we can just buy one more quarter or two more quarters before you know things come back to normal we'll be ok that's all they're hoping you know they don't know that whether or not it's actually the end of to people who may components so they record the sales that maybe they you know it doesn't mean necessarily people are buying cars it just means that that middle man who makes components using the equipment that was sold to them just means that they think that we're going to sell cars but nobody knows except for what's actually going on t v and so you see that in with with autos you see it with a lot of times anything you know any manufacture that you just you know some of them will be bad and some will be good and average out and you'll get some kind of growth which you know i feel them the market goes you know long term goes up because we've had population growth and a little bit of you know productivity growth in companies know how to you know turn two percent revenue growth into six percent income growth by you know by by efficiencies so if you define like that you won't like a total stock market index fund is just banking on the idea that we'll have continual population growth and that you know things will continue to do well in this direction and that individual companies if there's a problem are such a small part of that whole that whole fund that you really won't feel any bad effects because they'll they'll just either be replaced in the index or whatever but they'll be more than made up for the companies that are doing well you know if out of a thousand companies you know forty of them have problems but you know two hundred of them are doing really well and the other you know seven hundred  sixty are just kind of mediocre then you'll still do ok so yes especially if you reinvest so the idea behind owning a fine like that is you don't want to go to all those and so if you have an index fund  for the most part of limits what we in the financial you know there are different types of risk and you have so you are limiting individual company risk for the most part with an index fund no one company's performance should hurt your little no two companies performing no three or four you know it should be you would need a serious neutron bomb to from a company perspective now you have other risks but you don't have individual company risk to you is very low again that's the point of that bear was an index fund is if you don't want to have to do all this stuff like i said you you eliminate some risks and accept others but each type of investing that you do even you are fully exposed to market risk all right typically most stocks will follow the market and so therefore you know the theory would say that if you know there might be some companies that do well no matter what and if you are actively picking them you might be able to shield yourself or someone on active manager might not want to be invested at all just be in cash you know avoid rough times theoretically so you are avoiding individual company risk but you're taking on market injury interest rate risk you know stuff like that the macro type of risks so micro would be at the company level how is that company's business doing how many wages are they selling macro would be at the economic level what the interest rates how's p how's you know consumer demand how are wages doing stuff like that so you're pretty much just to your what you're accepting is that for the most part you think the us will gradually increase over time and like i think we talked to us before you came in the idea behind that too is for most people you're going to be fine an index fund just just happens every few years that the market blows up and you just hope you don't need the money at that particular time so that's that's really that's that's kind of how that plays are you could you're you just have to have a system to get back into that that works and doesn't cost you know as a cost but yeah doing most people if you look at it most people these days most of those trading programs are not you know someone trade stocks a lot of the big ones are trading the markets whether it's futures or or funds or exchange traded funds on indices so really a lot of people are just trading the whole market now and with the way interest rates are and stuff it all feels like one big trade to me anyway we the example that you just mentioned was like allowing products to be returned onsite exe you know side agreements and stuff having side agreements that don't show up in the in report is nothing you can do about that if they're if the someone selling something has a side agreement with their customer they can give it back to you and that doesn't show up on the report that's kind of hard to find number three boosting income with one time gains selling real estate you know for example you know likes for example in sears sears having a rough time but they own hundreds of millions of dollars where the real estate so every time they sell a piece of real estate they record again and less scrupulous companies might include those gains and highlight them in their financials who are making instead of saying you know why retail business going down the tubes but on the side we're making money selling real estate some companies must saying they did this but some companies might say oh real estate is part of our business we're doing great you know yeah retail is not so hot but real estate is doing well but they were in the real estate business you know they owned it because it's just way did things back then but one time gains is another way that you make it sound like that one time gain is part of your regular operating results makes you look good so that's that's a good  one more serious example of that is changing pension estimates and i believe we'll hear a lot about this soon i just feel that with interest rates at two percent so remember now when you have a pension how a pension gets funded is bas d is a lot of is based on the expected return that the pension manager applies to that pension fund so if we expect seven percent rate of return every year we're going to fund the pension based on the to the market doing seven percent now if bonds are earning two and your traditional pension manager and you have save forty percent or fifty percent or your money in bonds and you making two percent in bonds and you try to make seven then the other half of you money needs to make ten percent order to average out seven so now we're expecting more from the stock market because the bond market is not is not living up to its side so i feel like we are going to see some changing pension estimates maybe for better or worse so you know typically i think of things starting in the area probably selling the stock where they have a large pension but this is one way by changing pension estimates i can change our profits because i can decrease how much i have to contribute to the pension buying increasing the rate of return expected in the pension so as an example if i expect the pension to make seven percent but now we're going to change our estimate to eight percent the market can make eight percent so if the market's doing all the heavy lifting by earning more money we have to contribute less it's just like if you were doing you for a one k plan you were saving money in your ira a four one k and i have two options for you this four winkie accounts going to make it three percent a year and this ones that make you thirty percent a year and guaranteed you could put a thousand bucks in a thirty percent account and never put another dollar in there again and be all said ok the three percent account you need to put a lot of money in to get to your goal same way with comes with pensions if i can increase the rate return expect doesn't mean it's going to actually happen it's just what we expect so we can we can we can adjust what we're doing in the financials doesn't mean it's going to happen it's just expectations might change those expectations we change how much we are required to contribute to the pension that year so back when the market was doing really well in two thousand and two thousand and seven whatever you had pension issues because the market was doing so well people companies were contributing less to the pension because the market was doing all the heavy lifting for shifting current expenses to a later or earlier period so that we get to your a o l example a o l was capitalizing marketing costs does that mean i run a business and i sell whatever ok and this quarter we spent a million dollars marketing that's an expense considered an expense sort of like rent sort of like salaries that's an expense you need to put that on your  income statement so you know we heard a million dollars of marketing expenses this quarter a while that's a mad blitzer something they spent the time tons of money on marketing instead of saying this quarter we know we spent fifty million dollars on marketing they decided to they spent the fifty million but they put it on their income statement piece by piece over a period of time that they amortized it or capitalized it is the term all right so what they did was it made the current numbers look better because they didn't have to they didn't acknowledge the fifty million of expenses that quarter maybe they knowledge four million going to break it up over twelve periods you know and we'll do four million a period because you know this was a big marketing initiative it's really about the growth of our company is this is more like an investment than it was an expense that be the rationale they would use this is more in excess you know so it's it was you know we're not fixing the door in the house to put a new roof we put in addition on the house this is more of a this marketing is like putting in addition on the house it's a capitalize it's for a future growth and they come up with all your wonderful ways of explaining it and bottom line is they don't have to recognize those expenses right now we can do it over time something to look out for you see them saying something like that  a more money so that's pretty serious a more moderate example would be say with banks how much loan loss reserves they do so they in other words every quarter they made say we're going to set aside some money in case somebody defaults on their lo when they set aside that money that they can include that as earnings they have to put that into a reserve account and it cetera and some people can get you know as amazing get away with not putting enough into the reserve account they can pay for this later if their body defaults but but it can make the numbers look better right now you also reverse that too you want to get numbers look better you can also take money out of your reserves and say oh you know or we're not doing so bad if we are our client our customers are all paying on time we don't need these reserves let's take some money out of those reserves and boost earnings so you can play with the reserves or the amount of the loan loss of the amount of money you set aside for like banks would do in case somebody defaults for a fit a number five is failing to record improperly reducing liabilities this could be a simple example might be you know we got the bill we had a big legal problem and we had a pair lawyers three million dollars they gave us the bill late december twentieth and we just kind of pretend we didn't receive it's all january first so if we're doing a crude accounting which means like you know even though you didn't you know you know you haven't paid yet you that expense was incurred in two thousand and sixteen you just pretend you didn't see it incur that expense in two thousand and seventeen because you know that's going to look better for us we don't want this three million dollar expense this year is going to ruin the numbers let's do it next year so you pugh you shift you shift you know you just pretend you didn't see that bill and oh care at the time but a company called columbia gas back on the twenty or thirty years ago did what's called the take or pay agreement on gas take or pay a means you've got to you've got to either take the gas so they buy gas from a get from a gas supplier like you know natural gas and take a page means you're the taking it or if you don't take it you're paying for it paying for it anyway so take a pay so they did this had this big take or pay green which they didn't put in their financials so when the price of natural gas dropped and the seller said hey you know what you know then presidential gas right now is you know it is four bucks but you said you buy a forest from eight here it is take it and all sudden on that they have to report oh you know we have this take or pay agreement that we didn't tell our our  shareholders about and we got to pay eight dollars for the gas this quarter instead of four because we had signed as agreement and then boom you know ok that doesn't look good so having these type of agreements they might be mentioned in the footnotes they may not be directly mentioned in the main part of the financials you want to know because that's a potential risk especially with commodity prices any company that deals with commodity products and that's a heck of a financial task is to is to know how a how a company that even like your electric company or your gas company how they're hedging their risk to the commodity prices you know if they're selling it to you for this you know do they how do they buy it to they buy a year's worth of gas so they buy a month to month the most well known example of this i think is the airlines and they buy their jet fuel southwest for many years and oil prices went up like a hundred forty southwest had had use futures and secured their cheap oil prices for like four or five years in the future so they were still paying you know what eighty dollars a barrel when everybody else is paying one hundred fifty and you can do that in the financial markets that's the you know people think it's just a it's just a bunch of sketchy people trading but you know if if goldman sachs says we're going to sell oil you know eighty dollars and you know they're not always on the same side of the fence as a company just trading the commodities like goldman sachs or morgan stanley so what if you have these type of agreements and you don't know about them specially commodity prices because they can swing that could blow up the financials of your company tremendously and rice sugar food isn't citizens so you have soft soft like food you have hard commodities like the guy or steel things like that you have energy commodities like oil gas  commodity is something that you can put your hands on the futures trade commodities so futures are contracts the typically trade commodities stock exchanges currencies futures might be just how someone trades them yes southwest when they were hedging their oil they would use futures contracts they say we're going to buy a contract to buy oil you know let's say let's say all the airlines right now like oil where it is fifty dollars a barrel sounds good to us you know  let's say that you can you know let's see if you look at the futures contracts you can buy oil in december for fifty two dollars you can buy oil in december of two thousand and seventeen for fifty three dollars you can lock that contract in now you can buy oil for december of two thousand and eighteen f four dollars you don't want that contract and now so someone like southwest might buy those contracts to guarantee that they're not going to pay any more than fifty dollars fifty four dollars for the oil two years from now the other side of that might be another  producer or it might be an investor or some kind of trader it might be someone like goldman sachs or or someone like that on the other side of that trade the other side of the trade is we're going to sell this or fifty four dollars because we don't think it's going to be fifty four in two years we think it's going to be forty or something where they were going to make money so both sides think they're going to make money but typically the business interests of the commercial interest is doing it more to hedge and the traders the investors in traders do it more for speculation but all of the make a market together and it makes it makes it possible for a smart company like southwest to limit their wrist oil prices because they can lock their oil prices in for many years your oil if you any of you have oil heat at home your oil company might do this when they say we're going to give you this pricing for the year but you have to lock it in with us we're locking in with you because they're locking it in with their dealer it's sort of the same thing you know that's a good question so you would be helpful to understand futures in the know what they're talking about a report they might say you know if they're in the say it's a conoco phillips and they sell natural gas they might say you know we've hedged fifty percent of our natural gas production we're going to sell it at four dollars which tells you that next year's natural gas is at eight bucks conical still has to sell half of their gas at four because they agreed to they do that in case it drops further to a point where they don't make enough money and they are in trouble financially so they would they would lock it in a four dollars in case it goes to three or two and a lot of people in the believe right now we saw natural gas under three dollars it's so cheap they just burn it off when they when they drill for oil they just burn the natural gas it's it's hard to store it but it's tremendous how yeah i'm not sure it could be true be transmission charges could be the cost to transport it which might be going up so the two sides are just breeze delivering it to your door there's also the commodity itself i mean natural gas has gone up a bit this year and over ten or percent the actual commodity was so cheap though it's still right around three dollars with a call per m c f be ready in the next year or two or if not sooner in texas where they're going to actually they probably will go up but you know again we're producing so much of it maybe not much because if we have it is cheap enough for us to burn it off you know at some point yes well i don't know what it is now with that the global price was much higher you know even at some point a couple years ago you know the japanese being one thousand dollars for what we are paying three bucks for three four so course they have to import a lot of their stuff and it's not much is is native there as far as energy because of a nuclear ok so number six shifting current revenue to a later period this is  earlier kind of it is kind of a funny situation that the chill of mention of the book i use is example of w r grace had some health care division and because of a change at the time in the ninety's some change in medicare reimbursements they were suddenly had a bunch more revenue coming in and they didn't want to just say that quarter you know our revenue jumped you know forty percent so they actually used accounting maneuvers to spread that income out over a period of time because again they might make the stock spike in the next quarter it's gone ok well you know well so they did that what i find more interesting is number seven which is this is this is this is the stuff that kind of makes it into and you know this is this is something that i think if you ever read peter lynch's book one up on wall you have a guess why you do that washing machine right now all the same time so we have all these potential write offs and things let's just let's just let's just realize all that now let's come let's just come clean now with everything all at once what happens is that as all the expenses get kind of written off at the same time and they call it a special charge now the person who is most famous for this ok is and they be mention the book but i remember this guy you know if you ever chainsaw a paper and then but where he really were really really got hit was when he went to sunbeam and sin when he went there so in other words i say you you lay off a bunch of people and you give them all early termination packages you give  them severance these are all expenses you're going to incur over the next year but they just realize all the same quarter so i'm going to pay you twelve months of severance but i'm going to i'm going to expense all twelve months of expenses right now let's do it all at once we get all of it  stocks already in the whole bad news is already is it going to be let's put all the bad it can't get any worse let's just get it all out now so all those future expenses logistics pencil now so what happens all the expenses are gone the next quarter there's no expenses so all looks great when earnings explode because he just wrote off all the expenses last quarter's over the next two years there's no expenses to write off not now than other than the ordinary expenses so he cleaned out all the expenses all wall street analysts care about he's all those expenses bring him forward expense them take a big loss special charge so we took a billion dollar loss this quarter it's so bad anyway that the next quarter we have hundred million dollar profit and use google to get us right  most part all right if you're talking about fraud at a private company and you certainly could have a you know the government could bring civil charges against that company or whatever if you bring on the damages but you might not even find out at a private company though that could be a tax issue if the fraud is causing attack then you have an i r s problem they'll come after you but the s e z concerns itself mostly with investor related stuff so it's really a publicly traded company and you know they would expect certain you know exit generally accepted accounting principles we followed proper disclosures i'm sure they have books and books and what they expect but you know you can't you have to remember i mean made off was a regulator so you can expect a ton from from these guys all the time and bernie made off sat on the what at the time it's called finra now the n a s d board for his region he was a he was an inside guy he was the you know so you know if he was an inside guy you know you  under their noses he was defrauding everybody you know it's not someone's good at it's not easy to spot you know these are smart people these aren't the ones who get away with it or for this aren't dumb people these are people probably twice the i q i have you know if they know how to do this and you know why they would use their tremendous i q for that i don't know but but there they're good at it and they're smart and the people going up against him aren't you know junior analysts they don't want to rock the boat i mean a you can go on you tube you can look for  when to was talking about made off for two or three for years before he actually was brought and you know he would tell people the junior s c c analysts you know a lot of them are you know fresh out of law school or something and they don't want to ruin their career are you going to go accuse the a very well respected like you know member of the n a s d and i was on the board that there fraudulent and there goes your career forget about it so don't rock the boat reminds me of a friend of mine who work for the department of labor same thing there you know they just go after they keep it simple as go after one problem keep things simple and a whole nother story but chainsaw al if you can look him up and he was really i mean i remember him as a kid just because he was also a seventy's eighty's you  know he was i just know the name i mean a guy named chainsaw al you know just a great name but that you know he had to sell off losing assets right down poorly performing divisions lay in just in the ideas record all those expenses at once and the market will forgive it because it's the new c e o trying to clean house so the market gives them a pass as just get rid of all that stuff it's bad that's why nobody has a problem with it and then everybody knows what happens after anybody who invest knows what happens after a while in this the stock really shoot up so i don't know i feel bad for the people who bought it at one hundred now it's a two but i'm buying it a two a maybe as you know i make some money so it's just all market works so in other words let's say you want to find shenanigans social it lists some ways of using a database what to look for if you're going to use a computer screen for whatever reason maybe your own portfolio or you want to become a short manager like you want to or you want to run a fund that shorts companies or bets against home companies whatever reason  database tools he says define shenanigans steep decline in cash flow from operations rapidly rising receivables like we talked about earlier if i sell that software for three million and but it's really a twelve month thing i only collected one month worth of of on the subscription and so all this on the other eleven months is accounts receivable going to the accounts receivable figure on the balance sheet get really big that's something to look for big changes in gross margins big changes soft assets intangibles in other words like things you write off like goodwill you know when i if i if i if you have a company in the c of a pizza store and your pizza store has assets of the building you know this of in etc so you have assets of say three hundred thousand but i buy it from you for a million dollars because it's not you know the value of your business is not just the  pizza oven and the building it's it's the goodwill you've built up as the customers that come in all the time it's just the ability to run the business so the other seven hundred thousand is called goodwill that can be used properly or that is also another area that can