The investment landscape to buy stocks and bonds has become quite a challenge over the last 15 years for do it yourself investors as well as financial professionals within the investment industry. In the past, many retail investors would rely on their stockbroker or investment advisor to pick a particular stock or bond without the end investor even looking at the company's financial statements. Many times their stockbroker would just pick the investment for them. Only on rare occasions would an end investor ask their stockbroker or investment advisor if they could view the financial statements. Laws have been created so that every investor must receive financial documents prior to buying either a stock or a bond in a company. Before an investor buys a security from any entity they should understand what the entity does, the company's financial condition and maybe read what opinion either a rating agency or an investment firm has on the company's securities that they are buying.
There have been numerous scandals over the last 15 years such as Enron, Lehman Brothers, Bear Stearns, Local Municipalities, WorldCom, Aurther Anderson, Tyco International, Fannie Mae and Freddie Mac are to name a few. Some of these firms were the result of "cooked books" which would be false or doctored financial statements. While other firms had very high debt ratios and when time came due to pay their debts they were unable to meet their obligations. Some companies had continued losses on their income statements which resulted in a drop in their stock price creating losses for investors. As someone who reads financial statements from municipality's everyday it is so important that we look at for example the balance sheet and see if a municipality is too over leveraged and are riddled with debt, are they able to meet their debt service payments?
There are two examples that I use the state of California and Nassau County, New York. The state of California is a biggest economic state in the United States and the state have the 8th largest GDP in the entire world. The state brings in enough revenues but their biggest problem is their high liabilities. The same goes for Nassau County NY, which is located in Long Island and home to some of the wealthiest people in the Unites States. Their problem just like California is that they spend too much money and have high debt levels. If you are an investor whether a retail or professional it is so important to look at their financial states and say to yourself can these issuers meet my obligations if I were to buy their bonds? Are they able to pay interest payments when they are due? These are very important question and buy simply looking at the balance sheet and income statement of these issuers you can make your own informed investment decision.
There have been numerous scandals over the last 15 years such as Enron, Lehman Brothers, Bear Stearns, Local Municipalities, WorldCom, Aurther Anderson, Tyco International, Fannie Mae and Freddie Mac are to name a few. Some of these firms were the result of "cooked books" which would be false or doctored financial statements. While other firms had very high debt ratios and when time came due to pay their debts they were unable to meet their obligations. Some companies had continued losses on their income statements which resulted in a drop in their stock price creating losses for investors. As someone who reads financial statements from municipality's everyday it is so important that we look at for example the balance sheet and see if a municipality is too over leveraged and are riddled with debt, are they able to meet their debt service payments?
There are two examples that I use the state of California and Nassau County, New York. The state of California is a biggest economic state in the United States and the state have the 8th largest GDP in the entire world. The state brings in enough revenues but their biggest problem is their high liabilities. The same goes for Nassau County NY, which is located in Long Island and home to some of the wealthiest people in the Unites States. Their problem just like California is that they spend too much money and have high debt levels. If you are an investor whether a retail or professional it is so important to look at their financial states and say to yourself can these issuers meet my obligations if I were to buy their bonds? Are they able to pay interest payments when they are due? These are very important question and buy simply looking at the balance sheet and income statement of these issuers you can make your own informed investment decision.
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