One of the main tenets of this column has been that there is a need to collect and put data points in context in order to understand what is actually happening, rather than simply reading the headlines, if we want to make rational decisions about our money.
This is true be it for deciding on what stock, Exchange-Traded Fund (ETF) or mutual fund to buy as well as where to park our savings account and what credit card to have.
One of the greater, if not greatest, challenges is reading, collecting and putting all the data points into a usable mosaic as they can come from a variety of places - observations, newspapers and magazines, polls and studies and government filings.
Ah, government filings for public companies can often be daunting and confusing (Ever read a 400-page prospectus and understand it all after the first read?). Forms for public companies filed with the Securities and Exchange Commission (www.sec.gov) include each companys 10-K, 10-Q, 8-K, 424B2, FWP, SC 13G/A and more. Not only is reading all of these for each company a task, but knowing when these forms are filed is another.
Luckily, SECWatch, a local startup company, is on the job to help lighten our load. I recently spoke with the founders of SECWatch, Jason Zucchetto and Chris Auer, about how their company and its offering can help the everyday investor.
Question: First and foremost, what is the problem SECWatch is looking to solve?
SECWatch: There were 15 million pages of text submitted to the SEC in 2008, up from 2.6 million pages of text submitted in 1998. With such an enormous amount of information being submitted to the SEC each year, it has become impossible for professional analysts to read and dissect every SEC filing submitted. Through software, companies have perfected the art of extracting quantitative information from SEC filings. SECWatch is focused on revolutionizing the methods investors use in analyzing the other 75 percent of SEC filings, the qualitative portions.
Q: How does SECWatch benefit the everyday investor?
SECWatch: When an everyday investor looks up a ticker symbol, they are presented with the latest news for their investment. Most of the news investors are presented with are derivatives of information contained within SEC filings. Instead of waiting for a financial reporter to find interesting information within a filing to write about, why not go to the source. Find the filings submitted to the SEC for a company and discover information that may have been overlooked by the media.
Everyday investors will also benefit from the collective intelligence of crowdsourcing when looking for interesting details in SEC filings. Company pages on secwatch.com contain discussions around items found in SEC filings, bringing the power of the crowd Wikipedia has been so successful in leveraging, to SEC filings.
Q: What’s the value-add compared with using the “Company Filing” feature at SECs Web site?
SECWatch: SECWatch is about providing investors a user experience they have grown accustomed to in this new era of content-rich, highly-dynamic Web applications. Simplifying search is a perfect example of improved user experience. SECWatch is careful to replace undescriptive form type names (10-Q), which don’t always mean something to everyone, with easy to understand, descriptive labels such as “Quarterly Report.” Not only does SECWatch make it much easier and more enjoyable to quickly locate the information within a filing, but SECWatch also has the ability to capture and display the collective intelligence derived from an active community, which is something that the SEC will never be able to provide through their system.
Q: Tell me more about the ability to create snippets and conversations in and around the filings?
SECWatch: With any SEC filing on SECWatch, when the mouse cursor is moved over the text within a SEC filing, the cursor turns into a highlighter icon. Suddenly, anyone has the ability to highlight and comment on what they have just found. There is a tremendous amount of valuable information within SEC filings. We found this was the easiest method for investors to directly highlight and comment on material they find interesting.
Q: Aside from company filings, SECWatch also tracks insider buying trends. Why is this important and how does it impact the average investor?
SECWatch: It turns out that historically insider selling has never meant a stock will go down in price (over the long term). I rationalize this historic data with the idea that insiders want to diversify their holdings. If I was a founder at Google and held $10 billion in Google stock, it is natural for me to sell some of these shares and place them in other assets to diversify my investments. This doesn’t necessarily mean Google stock will go down in price. On the other hand, historically, companies with strong insider buying have been shown to beat the S&P 500 in performance. Personally, it makes me feel good to see executives with skin in the game. If the company does poorly, their investment loses value and they aren’t only rewarded for the upside (opposed to option grants).
Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston. He can be reached at email@example.com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.