Tuesday, November 22, 2011

The Smartest Guys in the Room

This is actually the second time I have watched this movie. I caught most of it the first time on CNBC one afternoon when I was sick. I thought I needed to watch it because I had heard a lot about it, but didn't know any of the details. As I am shifting into this business career I feel like I have a lot of catching up to do.

The biggest thing that stood out to me in this movie was the accounting principle they were able to get legalized. It basically said that you could count any money that is certain to be coming to you right when you sign the deal. It is as if you sell your car to your neighbor on Monday, but he doesn't get you the money until the next week. You trust your neighbor, so you go out and buy a new car with the money your neighbor is planning to give you. This principle is all good until the neighbor doesn't actually pay you. Then you are stuck with a new car payment and less money than you originally had.

Essentially this is the permission that was granted to Enron by the SEC. This allowed them to build a new factory and count all the money that they planned to make off it as earnings in the first year. When they didn't make what they expected they had to do it again in order to make up the money they told people they had. Every quarter after that they had to "expect" a little bit more money to cover the losses of the month plus some in order to get their stock to increase. Eventually this had to crumble.

I thought about this and realized that I had been in a similar (although not so large) situation last year. I was working on my research for my masters thesis and was supposed to talk to my professor once a week to just catch him up on what I had done. Some weeks were great, and we had a lot to talk about. The numbers in the following scenario are created to describe the situation, but are totally fictional. I dont remember exactly how the weeks passed.

Others were poor due to many responsibilities taking me away from my research. These weeks I thought to myself that I would just do a little extra work next week and skip my appointment until then. My goal was 10 hours a week of work, so I would just have to do 20 hours the next week. Well, at the end of week two my situation was predictable. I had logged about 5 hours of work at best. At that point I could admit my defeat and visit my professor, or...

Week three came to a close and I had done probably 10 of the 30 hours I was expected to have done. Surely I could come up with one big win and have it look like I had accomplished those 30 hours, right? I didn't have a choice not to.

Week four and five came and went. There were no big wins. Eventually I had to admit my defeat and talk to my professor. He was fortunately very forgiving, and we got back on track. I found that the key was to visit weekly even if there was nothing to report. It is amazing how quickly you can get behind, and there are no big wins that will get you out of it. I wasn't gambling with money, but clearly I was gambling on my time. Time has a funny way of not being any more available one day to the next, and I learned that it doesn't just appear when you need it.

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