Hindsight is 20/20

"Enron And What We Have All Learned"

We have received a number of inquiries concerning the Enron Debacle and what we think its effects have been and will be on the market and business, as we know it. A few things come to mind.

One company does not make the markets

From Enron's announced bankruptcy on December 10, 2001 the S&P 500 is up .70%, the Dow is up 4.90%, the Russell is up 6.80%, and the NASDAQ is down 7.40%. Although we have seen the disappearance of $45 billion in Enron's market cap, the markets have held their own. The markets are certainly evaluating the motivations and decision-making of senior management with a more thoughtful eye these days. But the markets are not predicting the end of profitable and prudent investments.

Diversify, Diversify, Diversify

No matter how much conviction you have in a stock, only invest as much as you can afford to lose. There are too many examples of Enron 401K participants, both active and retired, who have lost a significant amount, if not all of their investment capital. Enron is an extreme example of a company losing all its market value. However, investors in Lucent, Cisco, EMC and thousands of other stocks have lost significant amounts of value in the last two years. Even stalwarts such as McDonalds and SBC have lost as much as 40% of their market cap during this period of time. For the last five years Goodyear Tire and Rubber and Disney have returned -48.60% and -9.80%. Investors in Polaroid, a "Nifty Fifty" stock of the late 1960's never recovered its value from its market peak in over 30 years!

Assets are Everything

Enron is not the only company that may disappear as a result of its debacle. Arthur Andersen is on the verge of disappearing through a series of defections, mergers, and lawsuits as a result of its affiliation with Enron. What is common between these two entities is that during their Hey-Days both entities sold their "Intellectual Capital" and it was their primary asset.

Intellectual capital is the summation of its people, their culture and the reputation it all rides on. When all cylinders are clicking, a business built on Intellectual Capital seems to be free of all the obstacles and constraints of an ordinary business. However, reputation, intellectual capital and the businesses that ride on them can disappear from the public eye.

Don't Assume Senior Management Is Capable

The smartest investors consider management to be of the most important attributes of their investment analysis. All other things being equal people make the difference.

A colleague of ours is convinced the markets and public companies are manipulated by brilliant and devious executives. Our partner's belief is based on one of life's "isms". This particular ism is that less than 5% of any population group is excellent at what they do. These are the leaders and visionaries of the world. Seventy-percent are good at what they do. They are the followers. They can be executive vice-presidents or assembly line workers. Twenty-five percent are bad at what they do. They can be Presidents, doctors, or mechanics. You can buy them the bank, over-capitalize it, provide them the best people and they would still fail.

Qwest recently announced they are going to write-off $20 to 30 billion in items related to mergers and acquisitions. Simplistically, they invested shareholder money horribly! They made investments that most likely will never coming back in value. We are the first to admit that investing, like golf, is not a game of perfect. Mistakes, miscalculations, failures are expected. But $20 to $30 billion mistakes are being absorbed by shareholders while senior management responsible for the decisions are still collecting bonuses and cashing in stock options.

It may be true that Fastow, Schilling and a few other Enron executives were greedy and devious in their roles at Enron. Time will tell. But don't be surprised that when it all unfolds it is another example of incompetence on a grand scale. Don't assume that the title, degree or apparent experience of anyone has made them competent. Perform your own "smell" test.

Accounting Is a Language Unto Itself

Is accounting a complex and mysterious profession dressed in a conservative suit? For the average investor or businessman the answer is yes. It is like speaking a foreign language. Items such as pension income being added to earnings, off balance sheet financing, stock options as a non-expense compensation item, one-time write-offs related to� or a host of other accounting techniques have investors and analysts buying the latest edition of Accounting for Dummies. Accounting is the language of investing. Where management is an intuitive and subjective judgment, accounting is supposed to be objective and quantifiable.

According to a piece Bill Gross of Pimco wrote in March, The Economist in a February 23rd issue reported that the companies in the NASDAQ 100 reported combined losses to the SEC of nearly $82 billion, while at the same time promoting profits of $20 billion to their shareholders. The Economist explained this as the difference between GAAP accounting used for the regulators and the "New Age" Pro Forma accounting used for shareholders.

If an investor cannot decipher a company's books how do they understand what it is worth and how much money it makes? Investing is committing a dollar today to make another dollar in the future. If an investor can't understand what a company has actually done in the past, how can they possibly understand what it is going to do in the future? With the growing complexity in accounting methods it requires more than a cursory review of financial statements to determine a company's value. In our opinion, this only necessitates the need for you as an investor to place your trust and confidence in experienced investment professionals.

Howe Barnes Investments, Inc.	Peteris R. Abuls First Vice President

	Richard A. Bone, CFP First Vice President


	James A. Eller First Vice President

	Anne E. Carmichael First Vice President

Private Client Services

A p r i l 2 0 0 2

Hindsight is 20/20 "Enron And What We Have All Learned" We have received a number of inquiries concerning the Enron Debacle and what we think its effects have been and will be on the market and business, as we know it. A few things come to mind. One company does not make the markets From Enron's announced bankruptcy on December 10, 2001 the S&P 500 is up .70%, the Dow is up 4.90%, the Russell is up 6.80%, and the NASDAQ is down 7.40%. Although we have seen the disappearance of $45 billion in Enron's market cap, the markets have held their own. The markets are certainly evaluating the motivations and decision-making of senior management with a more thoughtful eye these days. But the markets are not predicting the end of profitable and prudent investments. Diversify, Diversify, Diversify No matter how much conviction you have in a stock, only invest as much as you can afford to lose. There are too many examples of Enron 401K participants, both active and retired, who have lost a significant amount, if not all of their investment capital. Enron is an extreme example of a company losing all its market value. However, investors in Lucent, Cisco, EMC and thousands of other stocks have lost significant amounts of value in the last two years. Even stalwarts such as McDonalds and SBC have lost as much as 40% of their market cap during this period of time. For the last five years Goodyear Tire and Rubber and Disney have returned -48.60% and -9.80%. Investors in Polaroid, a "Nifty Fifty" stock of the late 1960's never recovered its value from its market peak in over 30 years! Assets are Everything Enron is not the only company that may disappear as a result of its debacle. Arthur Andersen is on the verge of disappearing through a series of defections, mergers, and lawsuits as a result of its affiliation with Enron. What is common between these two entities is that during their Hey-Days both entities sold their "Intellectual Capital" and it was their primary asset. Intellectual capital is the summation of its people, their culture and the reputation it all rides on. When all cylinders are clicking, a business built on Intellectual Capital seems to be free of all the obstacles and constraints of an ordinary business. However, reputation, intellectual capital and the businesses that ride on them can disappear from the public eye. Don't Assume Senior Management Is Capable The smartest investors consider management to be of the most important attributes of their investment analysis. All other things being equal people make the difference. A colleague of ours is convinced the markets and public companies are manipulated by brilliant and devious executives. Our partner's belief is based on one of life's "isms". This particular ism is that less than 5% of any population group is excellent at what they do. These are the leaders and visionaries of the world. Seventy-percent are good at what they do. They are the followers. They can be executive vice-presidents or assembly line workers. Twenty-five percent are bad at what they do. They can be Presidents, doctors, or mechanics. You can buy them the bank, over-capitalize it, provide them the best people and they would still fail. Qwest recently announced they are going to write-off $20 to 30 billion in items related to mergers and acquisitions. Simplistically, they invested shareholder money horribly! They made investments that most likely will never coming back in value. We are the first to admit that investing, like golf, is not a game of perfect. Mistakes, miscalculations, failures are expected. But $20 to $30 billion mistakes are being absorbed by shareholders while senior management responsible for the decisions are still collecting bonuses and cashing in stock options. It may be true that Fastow, Schilling and a few other Enron executives were greedy and devious in their roles at Enron. Time will tell. But don't be surprised that when it all unfolds it is another example of incompetence on a grand scale. Don't assume that the title, degree or apparent experience of anyone has made them competent. Perform your own "smell" test. Accounting Is a Language Unto Itself Is accounting a complex and mysterious profession dressed in a conservative suit? For the average investor or businessman the answer is yes. It is like speaking a foreign language. Items such as pension income being added to earnings, off balance sheet financing, stock options as a non-expense compensation item, one-time write-offs related to� or a host of other accounting techniques have investors and analysts buying the latest edition of Accounting for Dummies. Accounting is the language of investing. Where management is an intuitive and subjective judgment, accounting is supposed to be objective and quantifiable. According to a piece Bill Gross of Pimco wrote in March, The Economist in a February 23rd issue reported that the companies in the NASDAQ 100 reported combined losses to the SEC of nearly $82 billion, while at the same time promoting profits of $20 billion to their shareholders. The Economist explained this as the difference between GAAP accounting used for the regulators and the "New Age" Pro Forma accounting used for shareholders. If an investor cannot decipher a company's books how do they understand what it is worth and how much money it makes? Investing is committing a dollar today to make another dollar in the future. If an investor can't understand what a company has actually done in the past, how can they possibly understand what it is going to do in the future? With the growing complexity in accounting methods it requires more than a cursory review of financial statements to determine a company's value. In our opinion, this only necessitates the need for you as an investor to place your trust and confidence in experienced investment professionals.

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The opinions expressed in this report are those of the author and are not necessarily the same as Howe Barnes Investments or its research department. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Howe Barnes and/or its affiliates may have an interest in, or from time to time trade or make markets in, the securities of issues discussed herein. Member of New York Stock Exchange Member Securities Investor Protection Corporation