should be left alone and not closed out on an emotional basis. The
scientific method enables us to make rational decisions rather than
emotional ones. Another way that this idea has been expressed is:
“You can win in the market if you act as a bull or as a bear, but you
are sure to lose if you act as a pig or as a chicken.”
Working for Reform: A Concluding
Action List
Investors today face a formidable task: being expected to pick stocks
during a time of reform and volatility. This volatility exists in both
technical and fundamental aspects as well as in the market culture
as a whole. We cannot yet know the long-term ramifications of Sar-
banes-Oxley; we cannot know how provisions will be enforced or
how corporate officers, analysts, and accountants will act under
those new rules.
During periods of such reform, individual investors can influ-
ence the course of events by making their opinions known to the
right agencies and people. Following is a suggested list of actions
that all investors can take to help reform the market system. Write
to the CEO and CFO of corporations in which you own stock, and
recommend the following changes:
1. Fix the difficulties in using the Web site. So many corporations,
well managed on most levels, offer very difficult-to-use Web
sites. Their annual reports are not presented for ease of access.
Changes should include helping to develop uniform standards for
reporting financial information on Web sites and in annual re-
ports. Suggest making changes in access to the site, format of the
annual statement, and the use of PDF and HTML files. If the files
are exceptionally large, a number of smaller PDF files could be
utilized for different sections of the annual report, for example.
2. Change the reporting format. Corporations should always
provide comparative data for at least three years. To study
trends, a five-year history is even better. The management
analysis of operating segments should include revenue and
cost analysis as well as plain-language explanations of the
meaning of technical notes and financial trends.
3. Use different auditing firms for audit and nonaudit work. This
idea will eliminate the conflict of interest in the accounting
industry. That industry has only worked to get around the re-
quirements of Sarbanes-Oxley and has not overcome its con-
flict of interest. Ask corporate officers to make those changes
themselves by isolating audit and nonaudit consulting.
You can make the same series of recommendations for (a) uni-
formity in annual reports, (b) changes in reporting formats, and (c)
removal of auditor conflicts of interest by writing to other organi-
zations. These include the FASB and AICPA; the SEC; and the au-
diting firms that include audit certifications in each annual statement.
Also write to the SEC and recommend a study of these changes
as a form of enforcing the disclosure requirements of Sarbanes-Oxley.
Finally, write to the stock exchanges and make the same recom-
mendations as new listing standards.
Every investor can find the information needed to improve the
basic information provided within the annual report. However, that
information can and should be provided in an easier to use format.
Writing to corporations, regulators, and stock exchanges may help
to develop uniformity in the future. The widespread application of
uniformly defined core earnings adjustments will eventually occur
and even become incorporated into GAAP standards. That would re-
quire corporations to conform to uniform definitions as well and
provide auditors with a means for defining core earnings as part of
a long-term trend analysis process. It may even become the norm to
make core net worth adjustments on a similar basis.

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