When the majority of us invest in the stock market, we believe we are picking good companies who will outperform the indexes. If we buy a fund, the pros who run the fund believe that they will be able to pick stocks that outperform the market indexes. The reality according to many surveys is half the companies on the exchange will under perform the index and one third will lose money in any given year. There are many potential solutions to the problem, one is to buy the index and not worry. Another recently offered method by John Del Vecchio is the Forensic Accounting ETF is to rate the companies according to their accounting methods. In accounting, there is the generally accepted method, then there are grey areas which are not technically illegal, but close. Theses areas in which companies have more leeway are revenue recognition practices, treatment of inventory, and material changes to operating expenses. Reading the notes in the annual report are important. This particular idea would rate the accounting and those with less than a passing grade would not be invested in. Hopefully, this fund will be successful and more investment companies will ignore shoddy accounting practice companies allowing for accounting practices to improve.

Linking to dividend paying stocks, a higher percentage of times, the accounting practices of dividend paying stocks will be higher than a passing grade. One reason is these companies tend to make money on a consistent basis and have less need to stretch into the grey area. Just because a company pays a dividend does not mean superior performance, but it tends to mean the company will not go into a free fall and have a loss of stock market value. The values the stock market places on the company for both growth and dividend protection will tend to be more realistic.

There are more questions than answers, till the next time – to raising questions