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Tuesday, March 15, 2005

Here's why the stock market isn't always the sure bet
Posted by Jill | 4:38 PM

I consider myself a reasonably savvy investor. I don't do a whole LOT of research, but I know enough to know that following the market usually doesn't net you a whole lot; you have to be somewhat of a seer, particularly with smaller stocks.

Because I'm sort of a socially conscious investor as well, I try to stay away from stocks in companies that I know are run by scumbags. Obviously you can't do this with mutual funds, but I have a few individual stocks that I've bought, and kept, for various reasons. I have a defined contribution plan through my job, and when its stock fund manager refused to divest Sinclair Broadcasting last year, after they were planning to show the Swift Boat Liars' hatchet job against John Kerry, I pulled my money out of those funds and moved them to others (which have actually performed better).

For a long time, Home Depot had been berry, berry good...to me. But when it seemed that Lowe's had more growth potential (and I like their stores better), I figured it was time to take my gains and go elsewhere. So I bought some stock in Lowe's, and I also bought Echostar, the corporation behind Dish Network.

Here at chez Brilliant, we've had Dish for 5-1/2 years and we love it. No, it doesn't have "real" TiVo, the way DirectTV does, but it also isn't owned by Rupert Murdoch. Echostar's CEO, Charlie Ergen, is kind of a folk hero. Here's a guy who put himself through college playing darts, then sold satellite dishes out of his car to people in cable-less backwaters. I think the price of my service has gone up maybe three or four bucks a month in those five years -- a drop in the bucket compared to the relentless price hikes of the odious Cablevision. Their telephone support is usually excellent, and their installers are terrific.

I'm not thrilled that they're going to be carrying the Pentagon Propaganda channel, but then, they DO have FSTV, so I can't really complain.

Last year Ergen fought a battle against Viacom, who wanted a huge increase in fees from Echostar; fees he didn't want to have to pass on, simply because Viacom just wanted more money. So for a week, all Viacom channels -- including Comedy Central and my local CBS affiliate -- were yanked from Dish. These were trying times indeed for Daily Show fans. But Viacom eventually caved.

That's the kind of guy Ergen is. How many CEOs hold regular phone chats with customers? Ergen does.

My broker wasn't really pushing Echostar, but they had a hold on it, so it seemed like at worst a minor risk. The account is an IRA, so I can afford to look long-term.

More recent swirling rumors have involved a possible takeover of Echostar by SBC, but they haven't gone anywhere.

But today, Charlie Ergen's crown of gold is tarnished, with this news:

Shares of EchoStar Communications Corp. fell Thursday after a report said an internal probe may have uncovered illegal accounting practices and a federal court declined to dismiss patent infringement claims against the company.

EchoStar shares fell $1.87, or 6.1 percent, to close at $28.72 on the Nasdaq Stock Market.

According to Bloomberg News, which cited unnamed sources, the Littleton, Colo., company may have improperly booked transactions with suppliers and made suspect consulting payments to a friend of Chief Executive Charlie Ergen.

The potentially problems were uncovered by EchoStar's audit committee, which was prompted to take a closer look after accounting firm KPMG LLP uncovered evidence of potentially illegal activities during an audit last year. The Securities and Exchange Commission has started an inquiry into the matter, according to Bloomberg.

EchoStar spokesman Steve Caulk declined to comment.

A spokesman for KPMG, Tim Fitzgerald, also declined to comment "on the basis of client confidentiality."


Now, I knew about the TiVo suit, though I really didn't think it would go anywhere. But the accounting problems, well, now, how would I have known about that? So here's a basically solid company, with a decent reputation, and a CEO with a reputation for straight-shooting. And even THEY'VE been cooking the books.

I'm doing what I can to save for retirement. I'm trying to make smart investment decisions, investing as aggressively as is appropriate for my age, without being foolhardy. But it would be good to know that there was a base there as a cushion, that base being Social Security. And if corporate executives could be relied on to be honest, and not cook the books, perhaps I might be more willing to regard the potential for greater returns as worth the risk. But as long as even the so-called "good guys" in corporations are engaging in this sort of financial chicanery, all bets are off when it comes to Social Security.
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