On the second day Michelle Leder of footnoted.com fame talked about SEC filings (here is a link to a PDF). The message I got from her talk: there are no mistakes in 10Ks and 10Qs. Most financial documents are templates that are created by corporate lawyers; and though numbers and explanations change from year to year and quarter to quarter, the risks disclosure, for instance, rarely changes. If there is a new section inserted, there is usually a very good reason for it.
A few months before AMR filed for bankruptcy it inserted a bankruptcy risk section into its quarterly filing – Michelle caught that before anyone else. Michelle uses 250 different searches to look for nonquantitative information in financial filings. I read financial statements all day long, but it is simply impossible to read every sentence in every document – I’d simply fry my brains with the monotonous legal language they are full of. So it makes sense to do searches for words that may spell trouble. Also, MS Word offers a very nice feature that allows you to compare documents to see if there are any template changes.
About the author:
Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.
Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).