The title refers to the book written about Nortel called The Bubble and the Bear by Douglas Hunter, Doubleday, Toronto, 2002. Nortel was a high flying stock in the 1990s to 2001 when it crash and burned. In 2014 it is still being dismantled.

One of the interesting things the author Douglas Hunter did was to examine at the time the new era of the chat room. In times gone by, most of the information from Wall Street was centred on Wall Street it terms of reports, people who spent time meeting with the company executives, people who through their jobs the gossip or worked on various accounts. To be on Wall Street was connected to all sorts of groups but it was a more leisurely pace. With the internet, information was opened up, the SEC gave access to information to anyone who had a computer so an individual could read the same reports as the analysts. Soon the President and CFO were giving reports which you did not physically have to be in the room to listen to, you can not either watch them or listen to them. The other aspect which changed was the rise of the discount broker or people could open up an account and do as much trading as desired. With the rise of the discount broker, there came the TV news channels and more people could invest. These items are a great thing to have happened. They changed the method investing is done.

One would think, with the greater access, more people of different points of view having access, the level of playing field closer to the pros, not at the same level but at least closer, better markets would be the result. In the case of Nortel, as Nortel share was increasing which in general everyone like, they were problems with accounting. Not that Nortel broke the rules, but they certainly bent them. However, with a rising share price the non pros or day or week traders, acted as the company’s position was 100% accurate and only wanted higher prices. The chat rooms were filled with stories, with every good announcement the price should go higher.

It is warning to shareholders if the company never seems to have bad information – everything is rosy, all the cylinders are burning at the right time. When the market is hot and prices seemingly go up, why prices go up is not to be questioned, the correct strategy at that time is to go with the flow. At some point down the road, all companies have to sell what the make or service and rules of financial statements need to followed. In the case of Nortel, its accounts receivable started to rise or the number of days it took to get paid from its customers. The company had announced who some of its customers were (WorldCom); investment in other companies was rising, because they were taking stock rather than getting paid; the sales of the companies it was buying was not contributing more to the revenue side (they were buying research) which can be a good thing but research means no sales at the moment. The market was fixated on the stock price, not the results of the company, and when the price of the shares went down the price went down, they went down with a thud.

Linking to dividend paying stocks, whatever company you own it still has to make money on its operations, when the company reports its earning it is important to ensure that how it makes its money is sustainable and when you verify it is, then you enjoy the dividends and long term capital appreciation of the stocks.

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