The Investor Diary Entry #47: August 13, 2023
One of the essential parts of researching a stock to invest in is learning how to read a 10k report. This task is very time-consuming as those reports are extremely lengthy. I always knew that the experts must have a way to read a 10 k report without having to read the whole thing word for word.
My realization was not theoretical. When I watch the videos of Everything Money and I see how within the video they jump from one part of the report to the next and they search for certain keywords that would take them right away to the section that they are specifically looking for, I would say that I want to learn how to read annual 10k report the same way that they do.
Reasons for Reading A 10K Report
Last Tuesday Everything Money (EM) made a webinar exclusive to their software members that taught how to read a 10K report like a pro. I couldn’t be part of that webinar as I had things scheduled at the same time as the webinar.
I was able to watch the recording a couple of days later, as they keep the link live for 48 hours. One of the key issues that I learned is that one does not read the 10K report for every company, and I concluded that there are two main reasons why one would refer to the 10K report of a company.
The first reason is when one is researching a small company. Those companies are risky by nature, and one needs to know as many details as possible about those companies. Even in this case one does not read the whole report but concentrates on some main parts of that report.
The second reason is when one is analyzing a company and certain questions start to come up because of that research and analysis. In this case, one needs to refer back to the 10K report to find answers to those questions.
A Third And Fourth Reason
I have a third and fourth reason in mind to read a 10K report of a company. The third reason is when one is researching a company that one does not know about. Meaning it could be a large company that is doing very well in its industry, but one that I don’t know about in an industry that I am not familiar with.
The Fourth Reason is when I am trying to understand a certain industry that I am interested in investing in. In this case, I would choose a couple of companies that are operating in this industry and read their 10K reports to have a better understanding of both the company and the industry.
Of course, one would not depend only on the 10K reports when trying to understand an industry, but it becomes one of the ways of trying to grab how companies in the industry operate.
I used this method when I was researching companies in the Hydrogen industry. This made me realize the different companies in this industry. Some are manufacturing, others are exploring, and some companies are building a commercializing infrastructure.
It was from this exercise that I got to realize the fault in the initial strategy that Nikola was utilizing before they announced the big changes in their strategy.
Some Main Parts Of A 10K Report
I don’t remember all the parts that the webinar talked about. My bad. I didn’t have a notebook when I was watching, and that is a big mistake. I normally do, but I thought that this time I wouldn’t need it. My overconfidence led me to think that I have read enough 10K reports which would make me remember the parts that the webinar is going to mention.
The first part that they talked about was the overview of the company. At first, I thought that this is true for companies that one does not know. I was wrong. One needs to read the overview because things can change, and in the overview, one might notice changes in the areas that the company is concentrating on. Areas that the company might not mention anymore. Other areas that the company might add as part of their operations.
The next area that I liked how they explained is the risks section. Yes, there are some generic risks that one does not need to take notice of, but this section is very important to read for two main reasons; if one is reading a 10k report for a new company, or to check if there are changes in the risks mentioned from one report to the other.
Next comes the financial statements section and the related footnotes. This section is one that I find difficulties in reading within the 10K report. I read the financial statements from the EM software and I am able to understand them and analyze them much better than reading them within the 10K report of a company.
Within the financial section, some special attention was given to understanding the compensation structure of the executives of the company.
The last section was the one that is written by the executives. This would give you a feel about who is running the company and interested they are in the future and well-being of the company.
One section that I don’t remember that the webinar mentioned was the competition. For me, I find this section interesting along with the one that talks about alliances. I cannot explain in detail the insight that I get because for every company the insights from these sections differ. One common insight is getting ideas for other companies to research and evaluate within the industry.
Away From Investing
I have been away for a while from investing. The last time I made an investment was in late June 2023. Since then, I have not researched a single company.
My attention shifted to learning how to trade. I am not trading stocks, I am learning how to trade the forex market. This is not the only reason, I have been facing some extreme challenges on a personal level, but I hope that I can get back to my work routine that will enable me to concentrate on the three main working sections; Investing, Trading, and Blogging.
Conclusion
The strategy that I was using to teach myself how to read a 10K report cleverly was by reading a few reports word for word until I realize which are the important parts to concentrate on.
I am not sure if my strategy would change after watching the EM webinar. I am still hesitant to skip parts of the report at this point despite the fact that reading a 10K report blocks a number of hours equivalent to 3 – 4 working days.
In the last couple of reports that read, I remember that there were areas where I just skimmed through them, and I was glad I was able to do that, as it gave me an indication that I am starting to learn which are the important areas of concentration.
For various reasons, I decided to freeze my investing activity until at least the end of September or early October 2023. This way I can give more time to my trading learning journey and decide if it is something for me or not.
During this time I will also try to be more frequent in my diary writing. This area has been affected a lot by recent events, and I want to get back on track. There is great satisfaction when I write an entry here. The day that goes by without writing one, makes me feel that my achieving is lacking regardless of the amount of other things that I was able to finish that day.
Sunday 13 August 2023
About The Author
I started to look into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second, as a place where I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly, as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
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