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Any financial educator will tell you about the importance of the informed investor. Investors need to understand the different characteristics of their stocks and bonds, as well as the companies that issue them. One thing that seems to be neglected, however, is where to get the data to do your research. After all, what good is it to understand how to evaluate a company’s earnings if we can’t find out what the company’s earnings actually are?
Key Takeaways
- Being an informed investor is crucial, and understanding how to evaluate assets requires access to comprehensive and reliable financial data.
- Corporate filings are valuable resources that detail a company’s financial health, performance, and future prospects, essential for evaluating investments in stocks, bonds, and mutual funds.
- The SEC’s EDGAR system collects regulatory filings like the 10-K form, which are critical for understanding a company’s annual performance, although accessing this data may require navigating through challenging interfaces.
- For those who prefer not to conduct their own extensive research, analyst reports offer professional insights into a company’s condition, available for purchase from brokerages and financial websites.
- Most companies maintain an “investor relations” section on their website where financial statements, annual reports, and other investor information can be accessed directly.
Leveraging Corporate Filings for Investment Decisions
Probably the most useful sources of information, corporate filings provide investors with information detailing companies’ financial health, future prospects and past performance. This is the kind of information you need to judge whether certain stocks, bonds or mutual funds are smart investments. For mutual funds, these filings will tell you the fund’s level of returns for the past quarter, the fund’s expense fees and its portfolio holdings. For the companies that you need to research when buying stocks and bonds, these filings go through the company’s balance sheet, detailing financial health and future outlook.
Careful analysis will help you see how and where the company is spending most of its money, how efficient its management is in creating profits and how positive the company’s future outlook is. Although many of these reports aren’t the most interesting to read, and are sometimes difficult to understand, they do offer a wealth of information that all different investors can use.
Note that according to SEC regulations, a company that has more than $10 million in assets and 500 shareholders or is listed on an American exchange such as the Nasdaq and NYSE must file official documents for public viewing. These regulations, however, do not apply to all companies, so the smaller the company, the more difficult it will be to track down good information about it. Some small companies choose to fill out the filings required of larger companies, but others do not.
Navigating EDGAR for Comprehensive Financial Data
An acronym for the Electronic Data Gathering, Analysis and Retrieval system, this service automatically collects and forwards regulatory filings submitted by different companies. The most important regulatory filing the SEC requires of listed companies is the annual 10-K form, which outlines the company’s performance for the past year. The 10-K must adhere to SEC standards, and it is typically more comprehensive than the company’s annual report. For mutual funds, EDGAR also provides all prospectuses online, so you can find the specific holdings of the fund’s portfolio, the maximum expense ratio that the fund can charge, and even the kind of compensation the fund management receives.
The SEC provides free access to EDGAR, but unfortunately, EDGAR is not user-friendly. It’s difficult to find information, and when you do, it’s in plain text format. The info is all there, but you really have to dig to get anything of value. Fortunately, there are other sites that provide a better way of accessing EDGAR data, but the downside is that they typically charge a subscription fee.
Accessing Financial Insights Directly from Companies
Any company that doesn’t have a website nowadays likely isn’t worth your time. Even most of the stodgiest “old-economy” companies have websites, if for no other reason than to provide information about themselves. When on the company’s website, look for an “investor relations” link. There you’ll often find a downloadable annual report, financial statements, stock info, company news, etc.
Every year, companies must send out annual reports to each shareholder, regardless of whether he or she owns one share or 10,000 shares. If you are not a shareholder and you’d rather read the reports in hard copy form, you can typically order them for free directly from the company. Larger companies like to use these reports as marketing tools. Some third-party companies also make a business out of providing free annual reports of public companies.
Utilizing Research Reports for Expert Analysis
If you don’t have the time to do all the research by yourself, or you aren’t a fan of crunching numbers, you can purchase reports from different firms. Depending on who they write these reports for, analysts are either independent, buy-side or sell-side, and they offer investors a professional examination of a company’s current condition and future outlook. Some of these reports are provided at no cost, but most are typically in the range of $5 to $50. You can buy these reports from any brokerage, from many banks, and through financial websites such as Yahoo! Finance.
Exploring Online Resources for Investment Information
Many different websites will offer information to investors for free, on a pay-per-use basis or on a subscription basis. The advantage of visiting financial websites instead of looking at filings to the SEC is that info is offered in a concise manner. You don’t have to sift through the legalese and market copy that companies put into their annual reports.
The Bottom Line
No matter what you are deciding to invest in, it’s crucial that you do the right amount of research so you know exactly where you’re putting your money. With such a wealth of information available, whether free or not, there’s really no reason for an investor to make an uninformed decision.
