As an investor, it can be tempting to react to every headline and breaking news story about a company. However, following the day-to-day news is often a recipe for making emotion-driven investing mistakes. Savvy investors know that it's smarter to ignore the noise and follow the regulatory filings instead. Here's why.
The News is Mostly Noise
Finance news sites, TV shows, and publications make money through clicks, views, and dramatic headlines that catch readers' attention. As a result, they often blow short-term events out of proportion or speculate wildly about impacts. For example, back in 2017 multiple news stories claimed Tesla was on the verge of bankruptcy. Yet as SEC filings would later show, the company was never at risk of going under. There are also issues with news being wrongly reported or lacking proper context. News outlets are racing for speed, not accuracy. Following news reports alone can give distorted perspectives on company fundamentals.
Filings Provide Facts and Figures
Unlike news stories, a company's quarterly and annual filings with the Securities and Exchange Commission (SEC) are legally required to present an accurate financial picture. These filings are carefully reviewed to ensure completeness, specificity, and adherence to accounting rules. For example, while news stories talked up speculative demand figures, Tesla's 2017 SEC filings provided concrete numbers - showing the company earned $11.76 billion in revenue and had billions left in cash reserves. Legal filings gave the true fiscal status. Filings also provide valuable context through management discussions. For example, filings might explain one-time costs or events that impacted the latest earnings data. News reports might miss these important explanations.
Use Filings to Make Informed Decisions
Savvy investors ignore daily market noise and instead use SEC filings like 10-Qs and 10-Ks to understand company fundamentals when making buy, sell or hold decisions. Specific sections to analyze include the balance sheet, cash flow statements, management discussion&analysis (MD&A), and footnotes offering extra details that news stories skip. For example, reviewing successive filings would have shown Tesla's consistent growth and cash position - giving investors confidence to ignore the bankruptcy rumors and buy more stock, which would have earned massive returns over the coming years.
Specific Examples Where Filings Trumped News
Looking at specific examples further shows why filings are more reliable than news stories:
Netflix Q1 2019 - News stories fixated on a minor miss in subscriber growth targets. However, earnings report revealed impressive revenue and cash flow growth, as well as solid global paid net additions. However, the company slightly missed its own forecast for subscriber growth, which raised some concerns about its competitive position in the streaming market. Despite this minor setback, Netflix stock performed well over the next year, with some fluctuations along the way.
Boeing in 2019 - After accidents put Boeing's 737 Max plane in the headlines, speculation ran rampant about cancelled orders and the end of dominance. Yet the filings revealed, the company still maintained a strong market share in the commercial aviation industry and a diversified portfolio of defense, space, and services businesses.
Square 2020 Pandemic Reports - News coverage declared the sky was falling on Square's payment processing business as lockdowns hit brick & mortar retailers. But savvy investors who read the filings recognized Square’s payment processing business faced challenges from the pandemic, but also adapted and diversified its offerings. Its stock price recovered from a sharp drop, but also experienced volatility.
Final Key Takeaways
These examples further illustrate key lessons for investors:
Filings provide the hard legal facts - not exaggerations or speculation.
Management discussions in filings offer valuable context missing from news.
Focus analysis on filings sections like cash flow, debt load and operational metrics.
Filings reveal the longer-term fundamental picture beyond short-term daily noise.
Rather than reacting to the 24/7 news cycle, wise investors make decisions based on the objective data provided in regulatory filings to realize better returns. Tune out the noise and follow the finances. In today's world of partisan news and sensationalist reporting, SEC filings represent objective truth. Rely on the filings, not the news hype, to make informed investing moves.
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