If you're an investor, you have a friend. His name is EDGAR. And he really, really wants to help you research companies.
Yes, EDGAR. That's the acronym for the database hosted by the Securities and Exchange Commission (SEC). It contains a huge number of financial filings that you, the common Fool, can access for free. Without EDGAR, it would be nearly impossible to effectively research companies and buy good stocks. In fact, that's exactly how it was before the SEC existed.
Rewind to 1929 for a moment. On Oct. 29, after several days of extreme bloodletting characterized by double-digit percentage losses and high-profile suicides, the Dow Jones Industrial Average plummeted a final 12% with a then-record 16 million shares trading hands. In many ways, the panic signaled the end of an era fueled by speculative excesses.
A federal investigation followed in 1931 and congressional reforms ensued. The most notable of these was the Securities Exchange Act of 1934, which created the SEC and gave it broad authority to regulate the brokerage and investment banking industries.
The SEC today
Fast-forward to the present. Today's SEC is a sprawling agency overseen by a five-member committee appointed by the president. One acts as a chairperson. President Bush appointed the current chairman, Christopher Cox, in 2005. (Fellow Fool Bill Mann interviewed former chairman Arthur Levitt in 2002.)
The real power in the SEC, however, is disbursed among four different divisions: Corporation Finance, Market Regulation, Investment Management, and Enforcement. Naturally, the Enforcement group grabs headlines for investigating fraud. It's the division that leveled charges against former Brocade Communications Systems (Nasdaq: BRCD ) executives for illegal stock-options backdating.
More important for investors, however, is the Corporation Finance group. It's the one that maintains the EDGAR database, which you may find here. Let's walk through some common filings that you may find useful:
- 8-K: This is the most likely filing for press releases, but it's also useful for uncovering material disclosures that aren't widely publicized, such as this three-month order summary from Emerson Electric (NYSE: EMR ) .
- 10-Q: Otherwise known as the quarterly report, this document contains footnotes to financial filings. In other words, it helps add color to the black-and-white picture presented by an earnings press release. Recent 10-Q filings have come from EarthLink (Nasdaq: ELNK ) , Hot Topic (Nasdaq: HOTT ) , and BriteSmile (Nasdaq: BSML ) .
- 10-K: Otherwise known as the annual report, this document is the most comprehensive explanation of the business available to investors. It includes detailed notes about executive compensation, expected risks, legal proceedings, and management's view of current and future prospects. Recent 10-K filings have come from Reader's Digest (NYSE: RDA ) and AMCON Distributing (AMEX: DIT ) .
- Form 4: This is the filing executives and other insiders or significant owners must submit when they change their ownership position in a company (i.e., buy or sell shares). I search for these each week for my Wednesday column, "Who's Buying Now?"
Follow the money
I've really only scratched the surface of what EDGAR has to offer. Want to learn even more? The SEC has a 46-page document that lists every type of form hosted in EDGAR (download the PDF file here). Then check out this write-up on investigating companies from our own Foolish cop, Rich Duprey.
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Fool contributor Tim Beyers says you don't have to be a cop to investigate companies. All you have to be is an owner. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get a peek at everything he's invested in by checking his Fool profile. The Motley Fool's disclosure policy is squeaky clean.