Investors Can Learn From Yahoo CEO Education Scandal

Friday, 04 May 2012 08:10 AM

By Jacob Wolinsky

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Dan Loeb is a famous hedge fund manager with a value oriented approach. His fund, Third Point LLC, is the largest holder of Yahoo shares. His fund has been trying to change the board of Yahoo and remove the current CEO, Scott Thompson.

Loeb has revealed a shocking fact about Thompson: his resume had been falsified.

Loeb, who is known for his fiery letters, issued a press release stating that the CEO had lied about his credentials. According to filings with the SEC, the CEO “holds a bachelor’s degree in accounting and computer science.”

However, Loeb discovered that Thompson only had a degree in accounting and not in computer science. The CEO was forced to admit this mistake.

Many investors already heard these facts because it was big news, so why is it being repeated?

This is an important lesson for investors. Loeb didn't hire detectives to swipe Thompson’s college records. Loeb stated that “a rudimentary Google search reveals a Stonehill College alumni announcement stating that Mr. Thompson’s degree is in accounting only.”

This is a very important fact; Loeb did almost no research and shocked all of Wall Street. All he did was search Google for a document available to the public. I also just did a simple search and found the same thing.

Loeb is a genius but it does not take a genius to type a few words into Google. According to Fidelity Research, 33 analysts cover Yahoo. These include analysts from major banks like Citigroup, Deutsche Bank, JPMorgan and many other famous names.

Yahoo has been in the public eye for a while. First Microsoft was going to buy them, and then private equity firms announced they were talking with Yahoo, finally Loeb bought a large stake and began his battle.

To be fair, the CEO has only been on the job for five months. However, the analysts covering the industry read (or should) all of Yahoo’s fillings. The latest filling for their quarterly earnings was 126 pages. Not one analyst discovered this sample fact available to the public domain. The media which has been covering the Yahoo story in great depth also did not uncover this.

A few important points can be learned from this saga.

1. Investors should not rely on analysts to do the work for them. Analysts clearly miss some major points

2. The SEC cannot be relied upon. The agency and Yahoo!’s auditors should have noticed the mistakes in the documents

3. Most importantly, think like Loeb. While looking at the whole story, think outside the box and what you might be missing


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