This story rings true with me.

“There have been scandals in corporate history where people are really making stuff up, but this wasn’t a criminal enterprise of that kind,” [Yale law professor Jonathan] Macey says. “Enron was vanishingly close, in my view, to having complied with the accounting rules. They were going over the edge, just a little bit. And this kind of financial fraud—where people are simply stretching the truth—falls into the area that analysts and short-sellers are supposed to ferret out. The truth wasn’t hidden. But you’d have to look at their financial statements, and you would have to say to yourself, What’s that about? It’s almost as if they were saying, ‘We’re doing some really sleazy stuff in footnote 42, and if you want to know more about it ask us.’ And that’s the thing. Nobody did.”

Gladwell’s thesis is that Enron was disclosing the information that someone would have needed to understand its precarious financial decision. However, not enough investors made the effort required to sift through the information.

I strongly recommend the article. However, I am not sure what to recommend to a professional investor, other than to make certain that you understand how a company makes its money. (For amateur investors, I simply recommend index funds. I am an amateur investor, and that is what I use.)

Over a decade ago, Warren Buffett sold a large holding in Freddie Mac when he decided that its new strategy of growing its mortgage portfolio made its business too complex for him to be able to understand how it was making its money). The portfolio growth meant that Freddie Mac was trying to make money by taking interest rate risk, and Buffett himself did not understand or have confidence in the mechanisms for doing so.

My guess is that he would not have found Enron appealing as an investment.