Sunday, December 20, 2009

Q&A Part IV: Interview with Michael Rapoport

Q6. Brief bio of Michael Rapoport:

A: 1999-present: Columnist writing the "In the Money" column for Dow Jones Newswires, focusing on delving beneath the surface of financial statements and market trends to find the stories that companies would rather investors not know about.

Finalist in World Leadership Forum's Business Journalist of the Year awards, best wire service journalist or team, 2008

Society of American Business Editors and Writers "Best in Business" award, wire service columns, 2007

National Headliner Award, best news service columns/commentary, 2001

Dow Jones Newswires Awards for best work done by Newswires journalists, 2001 and 2007

1996-1999: Reporter for Dow Jones Newswires covering courts and legal issues, stationed at federal courthouse in Manhattan

1995-1996: Copyreader on the desk at Dow Jones Newswires.

1993-1995: Editor for Dow Jones News Retrieval (now part of Factiva), working on business-news databases and other projects

1985-1993: Reporter for various daily newpapers in Connecticut

Master's in journalism from Columbia University Graduate School of Journalism, 1985

Bachelor's in English and political science from University of Rochester, 1984

Q7. What are the three top websites you read everyday? - the online edition of the Wall Street Journal. Subscription required, but I'm sure the NYU journalism library would have access to it. - the Securities and Exchange Commission's website. Useful for finding companies' securities filings, learning about SEC rules and enforcement cases, and how investors, companies and everyone else interact with regulators.

The Big Picture ( - The best blog about Wall Street and American business, written by Barry Ritholtz, head of a securities-research firm.
Columbia Journalism Review's The Audit ( - Critique of business news.

Q8. Please recommend a few books on writing or on business and economics.

Liar's Poker by Michael Lewis (A classic about Wall Street's take-no-prisoners culture.)

Conspiracy of Fools by Kurt Eichenwald (The best book on the Enron scandal.)

Wall Street Versus America by Gary Weiss (About the routine corruption in the securities industry.)

The Financial Numbers Game: Detecting Creative Accounting Practices by Charles W. Mulford and Eugene E. Comiskey (Shows you how to find when companies are bending the truth about their numbers. Mulford is a frequent source of mine.)


Saturday, December 19, 2009

Q&A Part III: Interview with Michael Rapoport

Q5. Take one of the stories you mentioned above, explain how extensive was the reporting before you sat down to write? How many people did you talk to? Who were they? What kind of documents did you read?

A: Assuming that we're using the Freddie Mac column that we've talked about: A lot of the answer to this question we've already spoken about or should be in the answers to the previous questions, but basically that column came about because I had previously forecast that Freddie would have to write down its deferred tax assets, for the reasons we've discussed. When they did so, I noticed that there was a substantial chunk of deferred tax assets they WEREN'T writing down, and the reason they gave was that they were related to losses on securities that they expected to recover, and thus they thought they could still use the deferred tax assets; thus they still had value and the company wasn't required to write them down.

As it happened, I had also written about the issue of these securities losses that the companies thought would recover, and I knew that they were unlikely to recover - both because they'd already lasted a long time (more than a year) and because a lot of them are related to mortgage-backed securities and other bad assets that are unlikely to come back.

From there it was really just a matter of confirming my suspicions with a couple of accounting experts. As a columnist, what I'll often do is find something that I THINK is valid, but accounting is so complex that I like to run my hypotheses past experts in the field, to make sure that what I think I'm seeing is accurate. I also go back to the securities filings - in this case the company's latest 10-Q quarterly report - to get a fuller picture of their position, as well as the numbers that are critical to my argument. In this case they said, "Yup, that's it" - so that even though I didn't quote any of them in the story, I could put forth my opinions with the confidence that they were valid.

In the process of doing all this, I found that Fannie Mae, Freddie's fellow mortgage-finance giant, had done something much like Freddie, on a smaller scale. They had written off something like $21 billion in deferred tax assets. while keeping $4.6 billion, using the same reasoning as Freddie. (Again, look at the story itself for the correct figures; I'm just using the figures I remember off the top of my head.) So it was only fair to include them in the story as well.

From there, it was simply a matter of calling the PR spokespeople of the two companies to give them an opportunity to comment, and to write all this up in a way that would make it clear to the average reader - which can be pretty tough in itself sometimes when you're dealing with complicated accounting topics.

To be continued...

Friday, December 18, 2009

Q&A Part II: Interview with Michael Rapoport

Q3. How do you look up statistics for companies? Which sources do you think are most reliable?

A: The SEC filings are the most reliable sources, and they're available through the EDGAR system at the SEC's website, These are the equivalent of sworn statements that the company's CEO and CFO have to certify are accurate - if they're found to have knowingly put false information in the filings, the SEC can sue them for filing false statements.

What used to happen, before the Enron scandal, was that many companies would, not outright lie, but skew things in their favor by reporting what they called "pro forma" earnings - their own measurement of their results, stripping out anything they wanted to. So they would say, for instance, "Our earnings for the quarter were 20 cents a share, but without bad things A, B and C, they would have been 50 cents a share, and we think that's the important figure." They ignored the fact that they couldn't simply wish away A, B and C, or treat them as unimportant. Because of Enron and the other accounting scandals, and because of the Sarbanes-Oxley securities-reform law and the regulations passed in association with it, companies have to be clearer in their press releases; they have to acknowledge when they're using measurements of earnings that aren't in accordance with accounting standards - known as generally accepted accounting principles, or GAAP - and show how those measurements are reconciled to GAAP measurements.

Q4. How do you build your network? How do you stay in touch with your sources?

A: In the course of covering a beat regularly, and writing stories about that beat regularly, you're going to come into contact with people who are useful as sources - officials of the companies you're covering; major investors in those companies; representatives of other constituencies who have an interest in those companies, like labor unions or regulators; outside experts who have an interest in those companies or that industry, like academics and think tanks; and many others.

Any of those people who are in a position to know about things worth covering on that beat, or who can provide valuable perspective on issues and stories that come up on that beat, it's worth your while to cultivate. Even people with an ax to grind, like the analysts working for investment banks, can be useful, so long as you remember that they may have a bias. Call your sources every now and then to talk about what's happening on the beat; send them stories or other information you think would interest them (only publicly available information, of course); and when you include them in a story, send them a copy of the story.

In terms of professional PR people, they're official representatives of the company, and they're usually not going to give you a scoop on something that the company isn't ready to announce. But good PR people will work with you to get you the information you want for your story, even when that story isn't going to be favorable to the company. They have a job to do, in representing the company's point of view, but they'll recognize that you have a job to do too.

To be continued...

Thursday, December 17, 2009

Q&A Part I: Interview with Michael Rapoport

Next four postings will be a Q&A series with an award-winning business columnist Michael Rapoport, Dow Jones News Wires. How does he find story ideas, how to build and keep his sources, and what reporting tools he recommends to use.

Q1. Take one story you've done and describe how you came up with the story idea.

A: The most efficient way to come up with story ideas is to have a good grounding about the topics. It is important to know how to look at balance sheets and how to read financial reports because companies will always try to put things in the best light, with a spin favorable to them - they'll downplay bad news, or not frame it in a way that would allow investors to fully understand its implications.

For example, I did a story a few weeks ago on Freddie Mac's tax assets. Freddie Mac was saying the company didn't have to write down some of their assets because the losses were temporary and were going to be recovered. Therefore, the company will still be able to use the deferred tax credits in the future.

But I knew it was BS because they had already endured for long periods and because a lot of them were associated with mortgage-backed securities and other bad assets that are very unlikely to recover soon.

So when I heard it, I knew it was worth writing about. I knew Freddie Mac certainly needed to write down its $18 billion deferred tax assets even though it interpreted laws in their own likes.

Q2. What will be one piece of advice that you would give to business journalists?

A: Always be suspicious when you look at numbers. Three years ago, there were a lot of mergers in telecom industry. In a story I did on SBC Communications Inc. (SBC)'s acquisition of AT&T Corp, I was comparing the savings the companies were touting with their combined total annual operating expenses, and pointing out that it would be virtually impossible to save, say, $15 billion in expenses on day one after the merger when the combined companies' expenses were $62 billion - you don't cut nearly 25% of your expenses overnight.

So you had to do your own calculation. I do my own calculation a lot. Sometimes it turned out to be something, sometimes not. But my advice is always aware that the company is not going to tell you everything.

In terms of what "tools" I used in looking into it, I think all I did was note that the companies had said that their savings were on a "present value" basis, and start asking questions about exactly what that meant. As noted in the story, it appears to be something that sophisticated professional investors would understand and take into account, but not necessarily something obvious to the layman or the average small investor. I suspect that sort of thing happens a lot - companies speak in their own language and cut corners in their explanations, and gloss over things that are important for investors to understand. And average investors don't press them on it, which they should - it's the equivalent of needing to read the fine print before signing a contract.

The company is not going to tell you any more than it's required to, and when it's in a press release they will try to spin things to their advantage. They'll bury the negative stuff on page 19 of a 20-page press release, or tell you that a gigantic charge against earnings isn't important because it's non-cash. The more you know about how to read financial statements and what's important in evaluating a company, the better you'll be able to let them know that you're not falling for their BS and get to the real story.

To be continued...

Monday, December 14, 2009

Video: Garrett Popcorn Shops - Once You Pop, You Cannot Stop

Find out whether it is the different way of making popcorn, the interesting mix of flavors, or the mention by Oprah in her favorite list, has made Garrett Popcorn special.

Saturday, December 12, 2009

Video: The Moth - A Fun Night Out

Looking for a cheap and fun night out in New York city? Try the old-style story telling.