Friday, September 21, 2007

Personal Investment Vignettes: XBRL, Pink Sheet Labels, and Art Loans

Here are some personal finance pointers, geared for those of you who like to research and select your own investments.

1. XBRL Interactive Capability for Investors. XBRL is a computer language providing an interactive capability that could help investors compare particular types of data for companies. For example, if you wanted to compare earnings per share and revenue growth for the same or different companies, XBRL is meant to make it easier to retrieve and use the necessary information. This application of XBRL is currently a pilot project of the SEC, and you can test it yourself by going to the SEC website (, look for the link on the left hand side of the home page that says “interactive data,” and click on it. Then, look at the bottom of the “News” section for “Interactive Financial Report Viewer” and click on that. You’ll go to a different website that has the pilot program. Pick a company’s filings, and start playing around. You can create charts, print out the information you see, and get the data in an Excel speadsheet. This is still a pilot program, and the few dozen companies participating are volunteers. The SEC just announced, on Sept. 20, 2007, that the market cap for XBRL companies has reached $2 trillion.

Although the Commission’s enthusiasm for XBRL sometimes has the spontaneity of a May Day celebration in Beijing, the use of XBRL is likely to grow. There are a couple of things to remember. First, XBRL may tend to standardize analyses, by encouraging users to compare companies using types of data that readily apply to all or many companies (such as earnings per share). This type of analysis could overlook the unique qualities that a company may have. The special features of the company may separate it from its competitors, and could be crucial to a wise decision to invest, or not invest. Too much reliance on XBRL analysis may lead you to more easily overlook a company’s individual strengths (and weaknesses). Stated otherwise, all the number crunching in the world doesn't replace sound judgment.

Second, another potential issue is that if XBRL analysis tends to become standardized (with everyone focusing on a limited number of types of data), the temptation for fraudsters to manipulate those types of data will increase. Thus, the data that everyone concentrates on may actually become less reliable. It will be important for auditors and the SEC to keep a close eye on this potential problem.

2. Pink Sheets Labels for Stocks. The Pink Sheets have historically been a trading venue for low-priced stocks about which little was often known. Not infrequently, these stocks were the subjects of manipulations and other scams. The Pink Sheets are now an electronic quotation system. In an apparent effort to upgrade its image, the Pink Sheets now attach a label to each listed stock. There are four labels: (a) a “PS” that indicates current information is available about the company; (b) an inverted triangular “Yield” sign indicating that only limited information about the company is available; (c) an octagonal “Stop” sign that indicates no information is available about the company; and (d) a skull and cross-bones, indicating that the company has been promoted by spam or other questionable means. If you’re thinking about investing in Pink Sheet stocks, pay attention to the label.

One more thing: if you see a “Q” at the end of a Pink Sheet company’s stock symbol, that means the company is in bankruptcy proceedings. If you’re at the Pink Sheets website ( and click on a bankrupt company’s symbol, you’ll be taken to the Pink Sheet page about the company. It will prominently display a warning that the company is in bankruptcy. Think carefully before investing. Bankruptcy proceedings are meant to help the debtor and provide some protection to creditors. Shareholders are last in line at the trough. Often, the shareholders of a bankrupt company lose all the value in their stock after the company is reorganized or liquidated.

3. Art Loans. Be careful taking out loans against your art. The Wall Street Journal (Sept. 1-2, 2007, p. B1) reports that, as the financial markets have recently become unsettled, banks and other lenders are becoming skittish about making loans collateralized by art. They are demanding better collateralization, and stiffer terms. That’s just as well, since you should think very carefully before using art work as collateral. You lose big if the work is ever repossessed. Your neighbor can buy a Maserati to match yours. But there’s only one of the van Gogh on your wall, and that’s your van Gogh, unless you allow it to become the bank’s property.

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