How frauds are built, how they are found, and the signals that were there.
A compelling story is a claim to test, and the test for a technology is watching it work.
Venture and growth diligence, and any investment where the case rests on a founder's account of something that cannot yet be seen.
From The Inventor: Out for Blood in Silicon Valley · 2019
When the filings are what is in doubt, the evidence has to come from outside them.
Building a short thesis, or any diligence where the reported numbers seem too good for the business described.
From The China Hustle · 2017
Whoever can take a position must not be the person who confirms it. Separate the hands, and the rest of the controls become possible.
Risk, operations and compliance questions, and any time a process lets one person both act and verify.
From Rogue Trader · 1999
Profit is an opinion about the future; cash is a fact. When they diverge for long, find out why.
Any question about quality of earnings, accrual accounting or how a fraud can pass an audit.
From Enron: The Smartest Guys in the Room · 2005
A track record with no bad months is a question, not a credential.
Due diligence on any manager, strategy or product that reports steady positive returns.
From Madoff: The Monster of Wall Street · 2023
Protecting a secret and refusing to demonstrate a result are different things; a company that cannot tell them apart may have no result.
Technology diligence, and any situation where access to evidence is being refused on grounds of confidentiality.
From Bad Blood · John Carreyrou
A short thesis is a public claim set against a fact the company does not control, with the arithmetic that joins them shown.
Short pitches, forensic work, and any thesis that depends on reported figures being false.
From Muddy Waters' initiating report on Sino-Forest · Muddy Waters Research
Read the notes before the numbers; the disclosure that matters is usually there and usually ignored.
Any model review, any quality of earnings exercise, and any short thesis.
From The Signs Were There · Tim Steer