Accounting Fraud, Compensation and Pension Liabilities in 2003

by Ashik Shah on 20 May 2003

Over the last 3 years the markets have fallen dramatically, leading many to believe that businesses are now valued inexpensively. I certainly do not agree with this assessment, and believe that markets need to fall further, or earnings need to rise, to bring valuations to reasonable levels. So, while many investors have been encouraged by the recent post-war recovery, I still see a need for caution. Indeed, this is compounded by issues of accounting fraud, executive compensation and also underprovision for pension liabilities.

However, this does not mean that one should not invest at all.  After all, in virtually any set of circumstances, there is always at least a small set of opportunities. Kurm investments continues to have a strong focus in insurance, reinsurance and in investment companies, particularly those adept at investing in vulture or bankruptcy situations. While the events of 9/11 and subsequent falls in stock prices have severely hurt the finances of many insurers, the loss of capital from this industry has led to an extremely favourable premium environment for those with strong balance sheets. Similarly, distress in sectors such as energy and telecommunications has led to tremendous opportunities for those with capital. Our investee companies are benefiting from at one of these conditions – some from both.

I expect these conditions to continue for a considerable time longer, and so we have not made many recommendations to change the structure of the portfolio. Indeed long-term value investment does not necessarily involve much shuffling of positions. However, I am keeping an eye on premium trends, as well as looking at ways in which Kurm might be able to take advantage of the distress in the sectors mentioned earlier.

Subscribe for regular updates

The views expressed and comments made on this website are not personal advice based on your circumstances. The purpose of this website is to provide information and analysis to help you make your own informed investment decisions. If you are not confident making your own investment decisions you should contact a firm which is authorised and regulated by the Financial Conduct Authority (such as Ashik Shah & Co. Ltd.) so that a qualified financial adviser, after considering your personal circumstances and investment objectives, can make personal recommendations of investments which are suitable for you. Whether you make your own investment decisions or prefer to follow the recommendations of a financial adviser you should always remember that your capital will be at risk and that investments can go down in value as well as up.

Previous post:

Next post: