The Tech Stock Investor

A Little History
Long ago several companies decided to take advantage of the web and share stock reports and research with surfers. Then came the pay-to-play web sites that contained those reports. Now several of these outfits provide excellent dissemination of stock market data, but most, if not all of them, get a lion’s share of stock data from the public filings that companies have to make to the Securities and Exchange Commission. This information is freely available to the public and can be accessed pretty much anytime.

Why A Guide?
I personally research every stock I write about or invest in and I get most of that information from the SEC website. To be fair, most of the paid services are excellent and for their audience, they provide a very valuable service. I prefer to read those reports and sift through them myself. The SEC website design leaves much to be desired and can be pretty formidable to the new investor or even to seasoned pro’s. So in that spirit, I decided to write this guide to using the SEC website for research and data gathering.

The Securities and Exchange Commission
I could write a book on why the SEC does what it does, but in this case I will just give a clip from the SEC About page:

The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

The world of investing is fascinating and complex, and it can be very fruitful. But unlike the banking world, where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. That’s why investing is not a spectator sport. By far the best way for investors to protect the money they put into the securities markets is to do research and ask questions.

Even the SEC says that investing is not a spectator sport and they are right. There is nothing (of monetary value anyway) to be gained by just watching, and everything to lose by participating. In my humble opinion, this is one of the few government departments that does things right (99% of the time anyway). To be completely honest, I rarely visit any pages other than the Edgar search pages and during one research session I accidentally clicked some other link there and got to thinking “what else is available here?” I was pleasantly surprised.

SEC Homepage - Click for full screenshot.

The SEC provides a lot of information for investors and a lot that is not directly targeted to investing like information for accountants and for companies.

Useful Calculators
Clicking on the “Calculators” link under the Investor Information section will take you to a page with several useful tools. All are useful in a financial sense, but for research and investing purposes only a few are useful to investors in general.

Useful SEC Calculators - Click for full screenshot.

The Mutual Fund Cost Calculator link on this page is somewhat misleading as there is only one calculator available and even it is hosted on a third party website. The link points to the NASD.com website, but in turn you get forwarded on to the FINRA site which actually has the calculator. Don’t let this scare you off. This is a very nice calculator. It allows you to enter up to three funds or fund families, your investment amount, the rate of expected return, and the holding period. Then it returns the expected expenses incurred while invested in that fund. It also provides a plethora of other information very valuable to mutual fund investors.

Further exploring reveals an asset allocation calculator available via the Iowa Public Employees Retirement System. This is also a very nice calculator with ease-of-use rivaling that of other commercial financial planning sites. There are more calculators and links available at the SEC Calculators page, but we will move on to the meat of this article: EDGAR.

Who Is EDGAR?
EDGAR is not actually a person. It’s a database that can be searched. According to the About EDGAR page, it stands for Electronic Data Gathering, Analysis, and Retrieval. Our main concern is whether it is a useful tool. I think after reading this article and actually using EDGAR you will find it to be an indispensable part of your research tool box.

EDGAR’s Page: Click for full screenshot.

From the SEC home page, clicking on the “Search for Company Filings” link will take you to another page full of links split into two general categories: General-Purpose Searches and Special Purpose Searches. Both are full of useful links, but we are only concerned with one link for this guide: “Companies & Other Filers”.

EDGAR Company Search: Click for full screenshot.

Once you get to this page you are on your way to getting the detailed reports that most companies have to file with the SEC. You have several options for navigating the database, but a simple search for company name or ticker will suffice in most cases. Searching for GOOG will bring us to the following page:

EDGAR Google search results: Click for full screenshot.

As you can see, we get a lot of results from this search. Not very useful at this point, but never fear, the SEC provides a form which we can use to narrow the results down quite a bit. To the upper right is the form that gives us the ability to refine our search even more. Enter “10-K” (without the quotes of course) into the field labeled “Form Type” (which is itself a link to a list of form types) and hit the button labeled “Retrieve Selected Filings”.

Now we are getting somewhere. Form 10-K is the annual report filed by most companies with the SEC and includes the complete rundown on the company financials. Clicking the html link next to the most current listing will give us the goods on Google. We are now faced with a few more choices. We can navigate to the d10k.htm link for the 10-k report. Be warned, this is a large file in some cases. Google’s is about 1.3mb.

Now we have to scroll down a page or two for the table of contents. There are two links which will lead to the most useful financial data on Google:

Selected Financial Data will provide the year end data in a consolidated format for the Income and Balance sheets.

Financial Statements and Supplementary Data we have to scroll down some more from this link to get to the good stuff.

Last Words
We have only touched on a couple of the offerings at the SEC web page. There are other pages and tools which can be used for numerous reasons, and this one report on Google could use a good reading by any investor planning to put some hard earned cash down for a few shares. Other reports are available, but Forms 10-K and 10-Q are a good starting point for investors. If you have used the EDGAR search and know of some other tips and tricks you would like to share then sound off in the comments and share it with the rest of us!

What is your favorite publicly available (aka free!) do you use for stock research?

Selecting stocks for potential investment is never an easy task. There are almost as many ways to measure stocks as there are stocks. One popular way to measure a company’s earnings potential is to look at its Cash Flow Per Share. First, we will show how to measure the Cash Flow Per Share (CFPS):

CFPS = Operating Cash Flow / Common Shares Outstanding

This is the quickest and simplest way to measure CFPS. Some will argue that manipulating this value is easy for company management to do, but if the measurement is taken in context to the stock and other stocks in its sector, any manipulation should be fairly transparent and easy to spot.

We want to focus on cash flow from operations because standard cash flow on a statement takes into account several other things which could be manipulated and we want to know the cash being generated from the company operations, not from investing and financing activities. Investing and financing is a common tool used by management to put spare cash to good use. When those activities inflate the CFPS figure, investors can mistakenly believe the company is making sales when it may actually have declining sales at that time period.

Why do we measure CFPS? We want to be sure a company can cover its obligations. A rising CFPS from year to year coupled with a rising EPS figure is a good sign a stock is heading in the right direction. Conversely, if EPS is rising and EPS is stagnating, investors should be asking questions.

There is a great post at GetRichSlowly.org by guest writer Pinyo, author of Moolanomy, about the mistakes made as an investor learning the ropes. I think the article references some mistakes that are made by people even after they have “learned the ropes.” I personally have succumbed to two of these mistakes noted:

8. Ignoring diversification — Again, with little experience and little money to invest, I was going after high-flying stocks (at least I thought they were) and did not pay any attention to diversification. Like asset allocation, it took me a long time to realize how diversification helps to reduce risk and enhance performance. The value of diversification became apparent to me at about the same time that asset allocation did.
9. Selling winners and keeping losers — This was my all time weakness. I knew the concept of “buy low and sell high.” So with little experience, I ended up selling a lot of my winners like Staples (SPLS), Ameritrade (AMTD), and Microsoft (MSFT) to lock in the gain; but held on to my losers like Flemings (FLMIQ) and eToys (ETYS).

I don’t know how many times I have let my portfolio allocations slip with more money in one sector than it should be holding while that sector was sliding and dragging my performance with it. This is just pure laziness on my part and my lack of checking the allocations on a regular basis.

Number 9 on the list is also one I still get caught up in now and again. Pruning trees and shrubs encourages growth and pruning your portfolio will do the same to it. Getting rid of dead weight gives you more money to spread around in your winners or to add new potential winners to your mix. When we become enamored of a stock we sometimes fall prey to the old “love is blind” cliche since we can clearly see that darling stock slipping, but we just cannot let it go. There must be a medical term for this, oh wait, there is. It’s called insanity: doing the same thing over and over all the while expecting different results each time we try. :) Stop the madness. Prune those portfolios.

What mistakes do you make in your investing life?