PREFACE TO THE SEVENTH EDITION
When I started this book, we had no grandchildren; we now have 12. At the time the first edition was released in 1980, the Dow Jones Industrial Average hovered around 850 (really!). This most-watched stock market index reached 11,700 in early 2000, and then it abruptly plunged, causing a big dent in my retirement savings. The Dow recovered over the following years, but then dropped again. As I write this sentence the Dow is on the north side of 8,000. As J. P. Morgan once said: "The market will fluctuate." Millions of individuals keep their money in the stock market, and stock investments are a large part of most retirement plans. Knowing how to read a financial report is as important as ever.
In the Preface to the sixth edition I spoke about the alarming surge of financial reporting frauds that culminated in the infamous Enron scandal, which brought down the venerable CPA firm Arthur Andersen. The fallout from these financial frauds was widespread and caused billions of dollars of losses to investors. The good news is that we have come a long way from those dismal days.
The federal legislation passed in response to the Enron debacle has been largely effective. Corporate executives and CPA auditors of public companies now operate under new rules. The general view is that the new rules governing financial reporting and auditing will make the stock market a fairer place to invest money. But we shouldn't let our guard down. The first defense is, as always, ...