Question

"It’s only when the tide goes out that you learn who has been swimming naked." ---Warren Buffett Please comment on this statement and give examples from previous accounting scandals and financial crises. cite the source

Answer 1

Things may look good and rosy up to a certain point, but if a company is leveraged too much expecting a wave to come, but instead the tide goes out, everything will be exposed.

Example : Enron

Things were great for a while. Investors were dizzy with excitement at the way the stock price continued to rocket up. However, the tide went out and the problems at Enron began to surface and snowball.

Not only was Enron swimming naked, it was doing it in a public area.   https://www.oldschoolvalue.com/investing-strategy/warren-buffett-quotes/

Buffett is referring to the holdings in an investor's portfolio.

When the market is high or rising, almost all investments go up so you can't see the problems in a portfolio. Just like the eventuality of tide going out, the market will fall and the metaphor of swimming naked is holding poor investments that can result in a realized loss.