Any financial educator will tell you the importance of informed investors. Investors need to understand the different characteristics of their stocks and bonds, and the companies that issue them. However, one thing that seems to be overlooked is where to get the data for research. After all, if we can’t figure out what the company’s actual earnings are, what are the benefits of knowing how to evaluate the company’s earnings?
Company documents may be the most useful source of information, providing investors with information detailing the company’s financial status, future prospects, and past performance. This is the information you need to determine whether certain stocks, bonds, or mutual funds are wise investments. For mutual funds, these documents will tell you the level of return of the fund in the previous quarter, the fund’s fees and expenses, and the amount of investment portfolio holdings. For companies that you need to research when buying stocks and bonds, these documents will run through the company’s balance sheet, detailing the financial status and future prospects.
A careful analysis will help you understand how and where most of the company’s funds are spent, the efficiency of management in creating profits, and the degree of positiveness of the company’s future prospects. Although many of these reports are not interesting to read and sometimes difficult to understand, they do provide a wealth of information that all different investors can use.
Please note that according to SEC regulations, companies with more than $10 million in assets and 500 shareholders or listed on US exchanges such as Nasdaq and the New York Stock Exchange must submit official documents for public viewing. However, these regulations do not apply to all companies, so the smaller the company, the harder it is to track good information about it. Some small companies choose to fill in the documents required by larger companies, but others do not.
An acronym for electronic data collection, analysis and retrieval system, this service automatically collects and forwards regulatory documents submitted by different companies. The most important regulatory document that the US Securities and Exchange Commission requires listed companies to submit is the annual 10-K form, which summarizes the company’s performance in the past year. 10-k must comply with SEC standards and is usually more comprehensive than the company’s annual report. For mutual funds, EDGAR also provides all the prospectuses online, so you can find the specific holdings of the fund’s investment portfolio, the highest fee ratio that the fund can charge, and even the type of compensation fund managers receive.
The SEC provides free access to EDGAR, but unfortunately EDGAR is not user friendly. It is difficult to find information, and when you do, it is in plain text format. The information is there, but you really have to dig to get anything of value. Fortunately, there are other sites that provide better ways to access EDGAR data, but the downside is that they usually charge a subscription fee.
Company direct sales
Any company that does not have a website today may not be worth your time. Even most of the most clumsy “old economy” companies have websites, if there is no other reason, just to provide information about themselves. Look for the “Investor Relations” link on the company’s website. You will often find downloadable annual reports, financial statements, stock information, company news, etc. there.
Every year, the company must issue an annual report to every shareholder, whether he or she owns one share or 10,000 shares. If you are not a shareholder and prefer to read the paper version of the report, you can usually order it directly from the company for free. Larger companies like to use these reports as marketing tools. Some third-party companies also conduct business by providing free annual reports of listed companies.
If you don’t have time to do all the research yourself, or you don’t like to deal with numbers, you can buy reports from different companies. Depending on who they write these reports for, analysts are either independent, buyer’s or seller’s, and they provide investors with professional inspections of the company’s current status and future prospects. Some of these reports are provided free of charge, but the price of most reports is usually between US$5 and US$50. You can buy these reports from any brokerage company, many banks, and financial websites such as Yahoo! finance.
Many different websites will provide information to investors for free, pay-per-use or subscription. The advantage of visiting financial websites instead of viewing documents submitted to the SEC is that the information is provided in a concise manner. You don’t have to filter the legal terms and market copies that the company puts in its annual report.
No matter what you decide to invest in, it is vital to conduct the right amount of research so that you can know exactly where your money is going. With such a wealth of available information, whether it is free or not, investors really have no reason to make unknowing decisions.