In 1993 I was still working at IBM after finishing up my MBA in Finance at night. I was actively trading options and doing conference calls with investors who told me to switch over to Wall Street. They invited me to an IPO lunch presentation for a company called Aptar (ATR) (a great example of fantastic long-term investment.) Sitting next to me was an older guy who was investing legend Mario Gabelli. BTW ATR has gone from around $4.50 to $130 over those ensuing years.
Here’s the thing. Everyone in that room was sitting there listening to the management presentation and picking at their chicken and rice. (I’m told that 20 years earlier people would be smoking cigars and drinking scotch but that was an era.) Mario came with a very marked-up document which was the S-1 filing.
During the Q&A with management, it was abundantly clear that Mario was the only one in the room who did his homework. He dominated the room and the discussion with his series of questions based on what he learned from carefully going through the filings.
Company presentations are basically marketing documents. The length is typically 25 slides in 20 point type. The filings are now 150+ pages of 10 point type. There’s a lot in the filings that is not in the presentation. And guess what? Managements cherry-pick all the good stuff and leave the awkward stuff buried in hopes nobody finds it.
So what kind of stuff do you look for?
There’s a bunch of analyst data in there that illuminates your model but you’ll find some more juicy stuff in there. For example, I’m doing some work on Playboy (PLBY) right now which is a newly-public company. Turns out they made a pretty important acquisition back in 2019 for less than asset value. You don’t see that very often.
The sections that are often most interesting are the “related party transactions” and the “notes to consolidated financial statements” which can range from almost nothing to pages upon pages. Much of this will never make it into the “investor deck” or even the Q&A sessions.
The “risk factors” section has ballooned because every lawyer wants it as long and all-inclusive as possible. But you still need to read it because interspersed with all the basic “we don’t know the future” and “bad things happen” stuff are disclosures more specific like the fact that a company relies on a dubious, single source, supply chain.
I could see doing some live webinars on going through some filings together but that’s because I’m a nerd. A friend of mine that has built a whole business on going through filings is Michelle Leder who has a service called Footnoted that could be of interest if you want to learn more about it.
If you are going to invest in individual stocks (and most people probably should own index funds instead) then you should be reading filings. It takes about two hours for me to go through a full ~200-page filing. If you don’t want to then recognize you’re gambling.