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Do you read all of the filings of a company you invest in?


TheAiGuy
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Do you read all of the filings of a company you invest in?  

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  1. 1. Do you read all of the filings of a company you invest in?

    • Yes! I like reading!
    • Phhhht... Reading is for losers. How much you deadlift, bro?
    • Sometimes.


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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

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You guys better keep hoping this bull market saves you.

 

"in any sort of contest – financial, mental or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try."

 

 

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You guys better keep hoping this bull market saves you.

 

"in any sort of contest – financial, mental or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try."

 

Scott is doing a pretty good job of making fun of me. Probs don't take him seriously here.

 

I, however, am asking what one hopes to gain from an undirected search through the filings in contrast to a direct (or hypothesis driven) approach. An aphorism about the benefits of preparation doesn't really address the issue.

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This applies to concentrated bets.  If you are diversified than i consider this closer to indexing and not investing - then i get it. 

 

But I don't understand how anyone can call a holding "an investment" and not look at all the filings, and at the least, go through every page of the 10K. 

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

To me this is a crazy question, it is like asking whether i should put on a parachute if i go sky diving.  but hey that is just me. 

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Also this isn't about whether you are right or wrong on any given stock.

 

It is about having a good process you consistently apply to all your investments.

 

But this doesn't even really matter....the truth nobody is going to change their process, i think a lot of investing is genetics...people who look at filings are the type of people who enjoy it, and enjoy doing detective work (i enjoy doing this it does not feel like work to me)....people who don't simply like doing other things (their brains are wired different).

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You guys better keep hoping this bull market saves you.

 

"in any sort of contest – financial, mental or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try."

 

Scott is doing a pretty good job of making fun of me. Probs don't take him seriously here.

 

I, however, am asking what one hopes to gain from an undirected search through the filings in contrast to a direct (or hypothesis driven) approach. An aphorism about the benefits of preparation doesn't really address the issue.

 

I am serious. I used to do all that shit and then I started trying a new style and found it way more interesting.

 

There is no way I am reading every page of a 10-K. I have 30 positions and don't care that much about any one of them, and when I did read through 10-Ks, I found that more often than not most of what's in is completely useless.

 

I wouldn't say I've been taught it's useless to even try. It can be very fruitful to try. I just reject the idea that reading SEC filings, beyond the financial statements, is necessarily all that useful in analysis. Most of what I've found to be important is qualitative. One way to look at it is that official filings are one source of information, but there are many. The Star Wars poster on my nephew's wall says a lot to me. So does the fact that when I'm searching for something, my first instinct is to load up Google. When I'm looking to buy something specific, I go to Amazon.

 

Anecdotal evidence is so useful to me because it says a lot about customer or user psychology. My brother was a Star Wars fan when he was a kid, and now he takes all of his kids to see the Star Wars movies and has them hooked on them, too. That's a 30+ year loyal customer. And there are a lot of them. Obviously Disney is larger than just Star Wars, but that tells me a lot about one of the big drivers for its studio and consumer products businesses.

 

Why would I look at SEC filings with all of their legalese and Mine Safety Disclosure risks when I can look within my own community to see how sticky brands can make customers? What is more useful? For some companies, probably the SEC filings. Probably the farther you go on the value spectrum, the more important these primary sources become. Obviously in bankruptcy situations, it is a must.

 

But for the most part, I do not look at those companies. I look at the companies that excite me, and capture my imagination; the ones that really drive me to understand what is it that this business does? And not just what it does in the traditional sense of, they make pet food, or auto parts, or whatever.

 

What they do for the consumer. What sort of reaction to the product do they have? Does this company's service make them happy enough so that they have them for life, or are they able to retain customers DESPITE shitty service?

 

All of these things - and many more - are my own sort of mental flags, and when one gets set off I get very interested because these flags all tell me things about a business that aren't necessarily going to show up in the filings. These sort of questions are much more interesting to me than obsessing about the maturity dates of all of a company's debt.

 

In many ways, focusing on filings can obfuscate the nature of a business rather than clarify it. As a person who aims to see the spirit of a business... to see a business for what it REALLY is... filings are only one part of the picture.

 

And for many of the businesses I invest in, they are a very small part.

 

I understand that filings may be useful for many people and aids them in the way they look at companies, but for me and my style, I've found them irrelevant. For most businesses I think only a few things really matter and though a trace of their spirit may be present in the filings, it is not where the spirit lives or where it can be seen most clearly.

 

The spirit - what really matters for a company - are often inputs rather than outputs. So, it can be useful to go to the top of a funnel and observe what's going in... rather than what's coming out.

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You are supposed to do both. The 10-Ks are just homework. But on the next level investing is allocation time and money. In some investments, the 10-K doesn't say much.

 

You have to effectively allocate all your resources.

 

On another note, there is also execution. If you are making 1to 2 percent bets on multi-baggers with high convexity exposure to the upside you don't even need to be right half of the time.

 

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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

 

I mostly do this.

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

Great. Do you have examples...more is better.

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I don't read every filing, but like to look at one 10-k before buying. Then when next year rolls around I just glance at the financials and earnings release, transcripts, presentations.

 

Sometimes I don't even look at the 10-k, just the financials. Like Apple, it was so obvious to me, and as Scott pointed out, if you think about anecdotal or real life evidence, that can be much more useful than a 10-k.

 

Then there are weird investments like ZINC where I looked at the 10-k, 10-q all of that. It wasn't a good buy but I can proudly say that paying attention helped me realize well before others that it was a shit show...and I sold with only a minor loss. Nothing fancy, just saw the gradual buildup of debt and capex all for one plant. Costs and delays that continued to surpass management's expectations. And lots of stock issuance. At the same time I failed to see the big picture, so I sold.

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Since we are near the note of smoking week and watching cartoons. You need to do things to recharge your batteries. For me, it is walking watchings movies and playing games. Sometimes I go on week long bike rides where I do around 70K a day for a week.

 

Investing is not about quantity of work but the quality of work and that resources at least for me drains quickly.

 

There is also faults on doing too much work when I was starting I once read 15 years of annual reports to do an investment in an oil company. The reports didn't matter only one thing mattered the price of oil and their cost of production. I lost around 50% of the investment. The management has lost their shirts.

 

They got lucky with oil prices back in the 2000s.

Investing are about heuristics that are time tests here are some.

 

Sometimes doing to much work also hurt you due to consistency and commitment.

 

Sometimes talking about your ideas to the public hurts you since you are pounding it in when you share an idea with others making it hard to sell when more information is revealed.

 

There is also a difference between knowing something and having evidence of something. If you look at enough companies you can tell within the first few minutes of looking at the financials and price, to continue or pass.

 

There is also a difference between having evidence and knowing something. Knowing something takes months to years having evidence takes a few hours to a few days.

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I read the filings before investment.  Then after investment, I blackline the 10K/10Q and read the 8Ks.  I also look for incremental information to confirm/disconfirm thesis in slide decks and other sources.

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Sometimes talking about your ideas to the public hurts you since you are pounding it in when you share an idea with others making it hard to sell when more information is revealed.

 

Yeah, I also find myself not talking about my biggest holding -- I don't want it to be "mine" so much

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I currently have a lot of small companies for which reading the filings isn't so much work and easily doable. For my larger companies I take a more directed approach.

 

I agree with this approach. For larger companies, I feel like there are thousands of others who are also going to read ins and outs of financial reports, so reading all that doesn't give you much edge. More important thing is your own qualitative interpretation.

 

For obscure companies, you could get some information edge by reading through their reports, talking to management, listening to earnings call, etc., because I assume not many other people would follow them.

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Do I read ALL of the filings? No, I don't care to read a 10-Q from seven years ago. The most recent 10-K, 10-Q, and proxy are all read in entirety though. Then, I generally click through every SEC filing from the past year or two to see if anything is worth reading. Many are pointless announcements that I click back on after 5 seconds, but sometimes there's stuff worth reading. Beyond that, I'd say it's dependent on the specific investment thesis. Sometimes looking at older filings is helpful, sometimes it's not.

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Do I read ALL of the filings? No, I don't care to read a 10-Q from seven years ago. The most recent 10-K, 10-Q, and proxy are all read in entirety though.

 

Related to this, I read some parts of the 10-K more carefully than others. For example, Buffett talks about many risk factors being known already - I don't spend much time in parts of that section.

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I now prefer listening to calls to get tone & nuance.

 

After that, industry pubs & discussions on forums like this one (including the sociological & philosophical threads) helps me to edge around that which doesn't get talked about by management.

 

The qualitative & strategic aspects of a company's operations are more important in figuring where the puck will be...

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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

 

I mostly do this.

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

Great. Do you have examples...more is better.

 

No.

 

Examples or evidence won't change your mind, you will block it out and look for evidence that aligns with your view.

 

 

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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

 

I mostly do this.

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

Great. Do you have examples...more is better.

 

No.

 

Examples or evidence won't change your mind, you will block it out and look for evidence that aligns with your view.

 

Unless you understand & acknowledge anchoring bias...

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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

 

I mostly do this.

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

Great. Do you have examples...more is better.

 

No.

 

Examples or evidence won't change your mind, you will block it out and look for evidence that aligns with your view.

 

Unless you understand & acknowledge anchoring bias...

 

This is the hardest thing of them all. This is what Makes Buffett and George Soros great the lacking in path dependence. It is best to try and avoid it with a good process than to think you can have such power of clarity.

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No.

 

Examples or evidence won't change your mind, you will block it out and look for evidence that aligns with your view.

 

You assume that my purpose was to put a burden of proof on you. But that wasn't it at all!!!!

 

I actually wanted you to give examples so I could make a checklist of things to check. In a way your right you would not have changed my point of view...there is no way I would ever read everything in disclosures. I have better and more important things to do with my life. I was hoping, though, that I could profit from the hard work you had already done and narrow things down to a few things to watch out for. After all isn't that what this board is all about...mutually profiting from the work of each other.

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This is an interesting discussion. 

 

I try to keep up with Annuals and Qs on companies I hold.  I cant claim to be particularly good at it, and I am not sure it matters. 

 

Over the medium term the qualitative becomes much more important, and the "knowing" aspect becomes more important.  Taking ZINC as an example.  I worked a couple of years in a very similar industry.  I have seen extraordinarily complex feats of engineering go multiples over budget.  From a strictly qualitative perspective I would stay away from anything like that. 

 

OTOH, Enbridge is really good at building and running pipelines, from the design phase all the way through the entire process of permitting, lobbying etc.  When Enbridge goes on sale I just buy the stock (like late 2015).  Brookfield Renewable Energy are wizards at indentifying good assets in the renewable energy space, and or building these assets. 

 

So much is qualitative. 

 

Someone above bought up the oil industry.  With most E&P  companies, you really want to know if their resource base is steady, and if management seems capable.  Can they service their debt at low price points?  Other than that you are really at the mercy of factors beyond your control, all listed in risk factors an infinitum. 

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I understand that this is sort of a heterodox view, but I basically just glance at fillings, looking for one or two things that I've previously identified as being material to my thesis. For example, I am looking for revenue growth or indications that a company does, in fact, have enough liquidity to survive, etc. That is, I am looking for something specific to support or falsify a previously constructed thesis on drivers of value in the business and don't bother with other things. Curious how other people think, but I'll be damned before I read about Nike's currency hedges again.

 

I mostly do this.

 

You find things hidden in 10Ks, sometimes ludicrous things , things you don't expect and weren't looking for, that could make, break or make your thesis a lot more fuzzy. 

 

Great. Do you have examples...more is better.

 

No.

 

Examples or evidence won't change your mind, you will block it out and look for evidence that aligns with your view.

 

A bunch of bullshit. You do not have an example to share.

 

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