How To Pick a Good Individual Stock to Buy? – Part 6: SEC Filings and Company Reports

by Hank

Before you invest in any company, you should know as much as you possible can about them. What do they sell or what services do they provide? Who are their competitors? What makes the company you like so special? What are they planning for the future? To find all of this out, you should read as many Securities and Exchange Commission (SEC) reports that the company files as you can. I personally read or listen to all of the Annual Reports, Proxy Reports, and conference calls that I can get my hands on for any company that I am seriously considering to purchase. And, with the internet, all of the information is available right at your finger tips.

Annual Reports & 10-Ks
The Securities and Exchange Commission (SEC) has made it easier than ever to get a copy of all the reports that companies are required to submit to the agency. You can search for any report very easily on the SEC’s Edgar Database. You can also get a lot of these reports directly from the company’s website in their investor relations page. The company’s annual report or 10-K report gives you a huge amount of financial data to digest about the company. Some of the highlights of the reports you should hit are the CEO’s letter to shareholders, management’s discussion and analysis of results, income statements, balance sheets, and cash flow. Do not get overwhelmed by all of the information that companies are required to throw at investors now. You will become more confident with these reports the more you look at them. Soon, you will be able to spot red flags in the financial data, like excessive debt or poor cash flow, which is the goal before you do any investing in these companies.

Proxy Reports
Did you know that Bill Gates owns 877.5 million shares of Microsoft (as of 9SEP07)? As of today, that’s a street value of $23.5 billion. Items like this and other executive compensation breakdowns are found in the company’s yearly proxy report. Public companies issue this report before their annual shareholders meeting to inform stockholders about key issues that they will be voting on. For most companies, each share of stock a person owns represents a separate vote you can cast. Stock ownership is ownership in the company, and stockholders vote for board members and other important items that direct the company’s action and future. A company’s proxy report is a great indication of the direction the company plans to go in the future and makes for very interesting reading.

Conference Calls
Conference calls are also very interesting. Public companies that trade their stocks on the major stock exchanges usually have a lot of large institutional investors such as pensions and mutual funds. Many companies bend over backwards to keep these clients informed about what is going on inside the company. One great way to be included is to listen into the conference calls over the internet. You can find out what day and time the company you are thinking about buying shares in will have their conference call and a link to go to it at Yahoo Finance. You won’t get to ask questions like an investment banker, but the wealth of knowledge that you will learn is incredible. It is a real behind the scene look at what is going on inside the business.

Disclaimer: Remember that most of your investing for retirement should be through good growth stock mutual funds. I recommend only invest in individual stocks with a small amount of “fun” money.

I hope that you have picked up some tricks and techniques over the past week that will help you when picking individual stocks. Now that you know how to find a great stock to invest in, check out tomorrow’s posting on dividend reinvestment plans (DRIPs….pronounced drips). Buy stock directly from the company and skip your stock broker’s commission. Have I missed one of your favorite things to look for when you pick an individual stock this week? Leave a comment and let me know.

Have you missed one of the postings in this series? Click on a link below.

Six Part Series On Stock Investing Continues…

Check out the rest of the articles in the series if you missed any:

  1. Key Metrics like P/E Ratio
  2. Charts, Graphs, & Averages
  3. Dividends & Dividend Growth
  4. Analysts’ Recommendations
  5. Insider Trading
  6. SEC Filing and Reports

Leave a Comment

Previous post:

Next post: