Finding Investment Info in the SEC FilingsMorningstarJeremy Glaser: For Morningstar.com Im Jeremy Glaser Im here today at the 2010 Morningstar stocks forum and Im joined by Michelle leader who is the founder and editor of footnoted.com which Morningstar acquired a few months back. Michelle is an expert in SEC filings and I thought I would get a chance to talk to her to see how investors can get the best use out of them. Michelle thanks for joining me?Michelle Leder: Thanks for having me Jeremy. Jeremy: You get a lot of alerts I know new SEC filing for any of your holdings but a lot of them seem kind of indecipherable you know you have 8ks, you have 10ks, you have 10qs how investors kind of make sense of all this information thats coming out of them?Michelle: You know the problem the reason it is decipherable is because a lot of companies go out of their way to make it that way first of all because you know the rules are very clear companies are required to disclose a lot of information but theyre not supposed to make it easy for the average it doesnt mean that they have to make it easy for the average investor or even the more sophisticated investor to find the information theyre looking for. As a general rule of thumb though you want to pay attention to the key filings that a company that you have, you know and investment is making. If its a small investment obviously you dont have to pay as close attention but if its a significant investment for you in a particular equity you really need to be paying attention to those filings.Jeremy: What are some of those big filings that you should watch out for?Michelle: Well obviously you know the big filings of the 10k which is the annual report and when I say annual report I dont mean the pretty one with the photographs and the CEO shaking the hands of the janitor. We mean the actual annual report the 10k. In addition theres three 10qs that the company is required to file and then theres also periodic 8ks. I also think that its a good thing to look at the proxy statement and thats sort of the bare minimum from there you have some additional filings as well as special situations and so on but really those are like the basic filings that you should be looking at.Jeremy: So when we think about the annual report which is probably the document that investors you know make turn to the most what are some of the key sections or the key areas that you should hone in on and what are parts that you can ignore sometimes these things are three or 400 pages long usually.Michelle: Actually some of them are actually 1200 pages long if you look at Citigroups 10k for the last year I believe it was like well over 1,000 pages and if I remember correctly with the exhibits and everything its actually 1200 pages which is you know longer than you know footnotes or you know some you know Russian fiction. It think we calculated out its not quite as long as spruce but its getting close to it so you know obviously the name of my site is footnoted.com and what we tend to pay attention to very closely is the footnotes because you have the numbers and then you had the story behind the numbers and I think that thats important to pay attention to particularly if its a significant holding for you.Jeremy: What are some of the red flags that youve seen in footnotes? Michelle: Well I think you know theres obviously you and me paying attention to some of the legal issues that companies are facing. Now theres a very fine line there because companies will say we could be sued for this or that or the other thing and obviously you know you dont want to be thinking that everything is a significant issue that the sky is falling but you know we found some really significant things that are disclosed in the footnote to you know in the legal situations that turn to a significant legal issue for the company. I think back to you know a couple of months ago with Intel for example and Intel had disclosed an issue of the European commission and that turn into you know a multibillion dollar fine for Intel and that was a significant theme and stock took a hit because of that.Jeremy: So its always good to take a closer look, read the footnotes and make sure that theyre not kind of this hitting issues or potentially explosive issues but you shouldnt necessarily blow everything out of proportion.Michelle: Yeah you dont want to be— if everything is an emergency if everything is significant issue then you dont know you dont know what to do and these filings quite frankly are written in such a dense way. The way I describe it is like its a mix between a you know you think its technically written in English but its really accounting speak mixed with lawyer to make some kind of gook language but makes it very hard for the average person to really cut through and understand and thats unfortunate.Jeremy: So it could potentially be a lot of rating but the reward could be you know pretty large as well?Michelle: Yeah I think you know obviously theres a lot of boiler plate in the SEC filings and thats you know what I try to share with people is that you know you dont have to if they can choose what your going to read just because theres a universe of filings out there to read it doesnt mean you have to read every single one word for word its kind of like saying you know the same thing like there is you go to the boarders bookstore and there is you know youre trying to read every single book, nobody will ever be able to do that in their lifetime obviously.Jeremy: Yeah unfortunately unlike you dont have to turn the book report when youre finished with the tank ahead.Michelle: Yes absolutely but you know there is a lot of interesting information in there and I would encourage you especially if its a significant if you just dont own 100 chairs maybe not as you know important for you, but if its a significant holding for you I think that its something that you ought to be paying really close attention to because if theres some good information in there and it will often let you know if theres a significant problem with the company before that becomes common market wisdom. In general what I find is that companies, the things that we find in the filings are usually a warning that winds up appearing three to 6 months down the road so company discloses something in the filings and become power to the common knowledge in the market place 3 to 6 months later. Thats when the stock falls. Now wouldnt you like to know about that before hand because then if you know about a potential problem before hand you can decide am I going to get out of the stock. You know can I tolerate this risk?Jeremy: Michelle thanks so much for talking with me today.Michelle: Thanks for having me Jeremy.Jeremy: For Morningstar.com Im Jeremy Glaser.