With the rise of Robinhood and the democratization of daytrading, it seems that everyone is chasing the next high-growth memestock. But in the frenzy over GME or AMC, it becomes easy to forget: investing in any publicly traded company means you own shares in that company’s management. That framing is an important one to remember at any stage of your investing journey, according to Unifimoney Board Advisor Max Osbon.
If you were buying a new car or even a new frying pan, what’s the first thing you’d do? Read up on the product! And yet, when investors are buying a stock, they rarely do the same due diligence. We choose our investments in all sorts of ways: studying the historical movement, a tip from a friend, a podcast interview with the CEO. Which is fine and good, but none of those provide us a true understanding of how the business works. For that, you have to read the 10-K.
“The 10-K is where the company tells the SEC about its business. They have to disclose their subsidiaries and how they are doing, future potential of the business, risks, etc.,” Osbon says. “It’s a comprehensive overview of the business, from top to bottom, that you can’t get anywhere else. Not from blogs, Seeking Alpha, CNBC, Twitter, or anywhere. It’s the single best way to understand a business.”
Publicly traded companies are required to release Annual Reports to their shareholders, which gives everyone who owns a stake in the company a window into their operations and finances. The Annual Report is a publicly facing document, heavy on graphics and design. But, for a much more detailed look into the company’s finances and outlook, experienced traders prefer the 10-K.
The 10-K is a yearly report filed to the Securities and Exchange Commission by every publicly traded company. Every 10-K includes five distinct sections: Business, Risk Factors, Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and Financial Statements and Supplementary Data.
“Some of the information a company is required to document in the 10-K includes its history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and any other relevant data,” according to Investopedia.
While the Annual Report is created to be easy to parse, the 10-K is a much denser document. But there’s value in gaining literacy in the more complicated filing. This is the most comprehensive document a company shares each year — if you’re looking to be informed on the state of a company, there’s no better tool than the 10-K.
You wouldn’t buy a car without looking under the hood. You wouldn’t even pick a restaurant without reading the Yelp reviews. So, why buy a stake in a company without looking at the 10-K? We want to help our members embrace quality investment habits.
While many companies include their 10-Ks in the Investor Relations section of their website, the easiest way to find a 10-K is to go to a site that offers access to all publicly traded companies’ filings.
Unhedged.com offers access to 10-Ks and other filings, as well as metrics and other data on every publicly traded company. Their dashboard allows investors to look over press releases, performance charts, financial data, and even read transcripts of shareholder calls. But, again, the most detailed and revelatory document of all is the 10-K, which they have for each company.
The SEC legally requires companies to disclose this information to make certain investors have a tool with which to intelligently decide whether or not to invest in a stock. Even the least transparent company is required to share hard data and unvarnished information via a 10-K — without the glossy sheen of the annual report. So, with that mind, how could you not take a look at the 10-K before you buy?
“I would argue that if you don’t skim through the 10-K, you know very little about the business you own,” Osbon says.
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The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.