What Lies Beneath

By Sean Gregory

Skip the analyst conference calls. Turn off CNBC. If you want to be a savvy investor, curl up with a 10-Q instead. Such is the advice of veteran financial journalist Michelle Leder in Financial Fine Print: Uncovering a Company's True Value. She doesn't expect you to read all 300 pages of a company's financial statement or try to comprehend complex derivatives. The most crucial section is the footnotes, where many companies bury bad news. An attentive reader can spot the red flags: inflated growth assumptions for pension assets, a subsidiary controlled by a son-in-law, lots of synthetic leases. Then get your money out. Compare the most recent reports to those of past years, and skim for the new material--if more investors had noticed Enron's infamous Footnote 16 from its 1999 10-K, which described sketchy off-balance-sheet deals, they could have saved millions. And look for onetime charges that appear year after year. "It's a little bit about being a nerd," says Leder.