Novice Investing - SEC Knocks Fannie Mae

Date: Monday 01st 2008f December 2008 04:22:21 PM

SEC Knocks Fannie Mae - 09/30/2005

By: Novice Investing Staff

Taser International (TASR) was knocked down on news of SEC formal probe. On Wednesday 09/28/05, it was Fannie Mae's (FNM) turn to get drilled. Now, to be fair, the SEC hasn't said anything yet. A report cited by anonymous source revealed that investigators had discovered evidence of executives fiddling around with asset valuation, tax credit, and others.

The silence of management has led people to believe that something is amiss. Fannie Mae felt 11% on the days of the rumor. This is a tricky situation. We do not have access to insider information. Who knows what they have found? One thing is for sure. FNM's future Earning will be lower because the reason of the investigation is due to management's aggressive accounting activity. The question of the day is how far they pushed it. Old management has been shown the door. New CEO was installed. Fannie Mae definitely manipulated its book during old management's tenure. The question is how bad. That is what drives the stock price.

What's the difference between Fannie Mae and Taser? For one, Fannie reported earnings of north of $ 7 Billion. It is massively profitable. While earnings will be revised downwards, after all is said and done, Fannie Mae will still be earning billions of dollars. Taser, meanwhile, was barely profitable with earnings in the million dollar range. A few distractions such as SEC probe will push Taser into a loss.

In either case, we believe that preservation of capital is our main goal of investing. Accounting irregularities have a high degree of risk of losing our hard-earned money.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Taser International Inc.(TASR), Fannie Mae (FNM) or other securities.

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