Volume 27, No. 3 | The Analyst’s Accounting Observer

Volume 27, No. 3

Reading a firm’s 10-K and annual report might seem to be an anachronism in an era where tweets move stock prices and pure market volatility can be bought and sold just like so many cans of beans. Digital technology makes it possible for investors to do incredible things: they can monitor a company’s website to see how active it is and make judgments about “conversions” of site visitors into paying customers. They can teach machines to search for key words in SEC filings and make automated trading rules based on the findings. They can pluck volumes of specific data out of the SEC’s EDGAR database on only the data points they crave.

What they can’t do, despite their digital legerdemain: Grasp the totality of the firm that becomes yours by reading the entire 10-K and annual report. Maybe only long-term investors would care about that, because if you’re making an investment for the long haul, you’d like to have a good idea of just what you might be getting into. Maybe long-term investing is an anachronism, too – but pendulums swing in two directions. You never know when long-term investing might come back into investment fashion. (After all, skinny ties seem to reappear every other decade or so.)

 Connections matter in investing, and the facts you pick up from a 10-K can relate to other facts in your store of knowledge. Reading the 10-K can serve you well later, if you’re trying to be an independent thinker. You certainly won’t become an independent thinker if the last thing you read from a Wall Street bank is the first thing to come out of your mouth. (In some circles, that’s scornfully referred to as “LIFO research.”) The 10-K information is too good to pass up: it just takes discipline to acquire it.

Put down that cell phone, drop the keyboard and pick up a 10-K. It’s food for thought, and it’s non-fattening for your waistline – but maybe fattening for your portfolio.  This report describes some new information for investors to consider as they research the new 10-Ks and reviews some analyses that are possible only when the 10-Ks arrive.

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