Thursday, May 30, 2002

By Ben Werner
Savannah Morning News

Projections put the number of global investors at more than 350 million by the end of next year, but Mike Markowski sees a void in financial news services.

The bulk of these investors are likely to be non-English speakers, which is where Markowski's company, Newsgrade Inc. steps in.

Markowski, director of research for Sarasota, Fla.-based Newsgrade, has spent the past six years working with his brother, David, to build a database of financial information that alerts investors to changes in their stock holdings using numbers and graphs.

An offshoot of Newsgrade's service is the free Web site named StockDiagnostics.com. Investors can see if favorite stocks are suffering from what Markowski calls "Earnings Per Share (EPS) Syndrome."

In simple terms, the phenomenon occurs when a company boasts of record revenues, driving stock prices up, but in reality has little cash on hand.

This is essentially what happened to Enron.

The Web site is also intended to be a way for Newsgrade to attract more subscribers.

So far, Markowski said Newsgrade has raised a little more than $17 million from private investors to get the company running. Roughly a quarter of the 400 or so investors betting on Newsgrade, and the Markowskis' mother, live in the Savannah area.

So what's the draw to get investors to buy subscriptions at $20 per month for the service?

Newsgrade's analysis of stocks is based on a company's cash flow.

Newsgrade culls 1,800 data points for information about a company and forms a rating based on what sounds to be a simple notion -- how much cash a company earns from its operations, divided by the number of shares -- and crunches these numbers into an easy to understand graph.

"We watch companies and when a newsworthy event, a hiccup in a company's performance, occurs, we can send this news out," Markowski said.

Easy to understand and easy to access is important, Markowski said, especially when considering a non-English speaking country, such as China, has an estimated 60 million stockowners.

A Chinese version of Stock Diagnostics is currently being developed and Korean is the next language to be tackled.

The service is already available in German, Spanish, Japanese and English.

"EPS syndrome -- people think it's just Enron, but it happens all the time," Markowski said.

The syndrome might happen all the time, but the information predicting it is already publicly accessible, says Michael Toma, director of the Center for Regional Analysis at Armstrong Atlantic State University.

Had StockDiagnostics been running two years ago, the Web site says, investors would have been warned about Enron's impending failure.

But at that time, had it been working, Newsgrade's staff could have shorted Enron stock and retired trillionares, Toma said.

An investor who sells stock "short" borrows shares from a brokerage house and sells them to another buyer. Proceeds from the sale go into the shorter's account. The shorter must buy those shares back (cover) at some point in time and return them to the lender. Profits are made when the price of stock being shorted drops, allowing the shorter to cover by spending less on the stock than what it sold for.

"Put together short options on companies signaled with EPS and I wouldn't even need to own stock," Toma said.

Markowski, a researcher at heart, seemed to bristle at the suggestion his company would be a tool for high-risk investors.

"We're not in the business of advocating either way, the longs or the shorts," Markowski said. "If you use this, you're going to clearly avoid stocks that are imploding."

Business reporter Ben Werner can be reached at bwerner@savannahnow.com or 652-0381.