I've got a government informant. He gets me all the dirt on the stocks I own because, well, that's his job. And there's never a need for a 2 a.m. rendezvous or secret signals. Best of all, he's as highly placed as Bob Woodward's W. Mark Felt.
His name? EDGAR.
Who is he, you ask? Well, actually, what is it would be the better question. EDGAR stands for Electronic Data Gathering Analysis and Retrieval. It's a database that contains all the filings of companies that are publicly traded in some form or another here in the United States. So, if you need to know about, say, stem cell researcher Aastrom Biosciences (NASDAQ:ASTM) you can ask EDGAR to pull all the files on the company. And for nothing, no less. It's free. Seriously, Fools, check this out.
Creating an investor's best friend
The Securities and Exchange Commission (SEC), which owns and maintains the EDGAR database, was created in 1933 to provide investors with the information needed to make informed decisions about stocks. A number of reforms were put in place, but the signature of the SEC became the filings it required of publicly traded companies. Originally, these documents were all stored on paper, and they were only available as paper copies. You might imagine this was, uh, a little inconvenient for Joe and Jane Oddlot.
Enter EDGAR. According to background available at EDGAR Online (NASDAQ:EDGR), a public entity that provides a suite of investor services, the database began life as an idea in 1984. That's the year the SEC budgeted $30 million to create a pilot software program that would ultimately lead to the creation of EDGAR. Now, more than 20 years later, all 9,000-plus public companies file their required documents to the database electronically.
Got your decoder ring?
The thing about SEC filings is that there are several kinds, all identified by numbers. Each flavor presents a different piece of a company's financial picture. Let's go over a few of the most popular below, OK?
1. The 10-K. This one's the big daddy, the annual filing. It differs, however, from what we call an "annual report," even though, technically, it is also filed only once a year. Whereas you might think of an annual report as a speech to shareholders intended to place the company in the best possible light, the 10-K has a just-the-facts-ma'am flavor to it. It usually contains the past three years of audited financial statements, as well. Need an example? Here's one, posted yesterday by Alliance Semiconductor (NASDAQ:ALSC).
2. The 10-Q. Otherwise known as the quarterly report, the 10-Q doesn't contain audited financial statements, but it usually has a lot more data than the earnings release. For example, if you own a stock that dishes out options like the ice cream at your 5-year-old's birthday party, it's here that you'll find out the potential impact on earnings per share (EPS). That's exactly what my Foolish colleague Seth Jayson did when examiningIntel (NASDAQ:INTC) a while back.
3. The Schedule 14A. Ah, the proxy statement. Here you'll find everything you need to know about executive compensation, cozy insider deals, and shareholder proposals you're being asked to vote on at the annual meeting. Indeed, the proxy is an oft-overlooked symbol of the power you hold as a shareholder and owner. Don't believe me? Ask the former management at Motley Fool Hidden Gems pick Flamel Technologies (NASDAQ:FLML) what they think.
4. Forms 3 and 4. By far the most frequently filed forms, these are required when insiders or significant owners (those who own 10% or more of the company's shares) acquire or dispose of stock.
- Form 3. Otherwise known as the initial statement of beneficial ownership of securities, this form is required when a position is opened, such as when a stock option grant first becomes effective. Here's a good example. It explains how World Wrestling Entertainment (NYSE:WWE) Senior Vice President Thomas Barreca was recently granted options representing 35,000 shares, with a strike price of $12.90 per stub. Those options will begin vesting in July.
- Form 4. Otherwise known as the statement of changes in beneficial ownership of securities, this form is required when a position changes, such as when an option gets exercised. Go here for a recent example. It shows how William Strauss, CEO of Motley Fool Rule Breakers pick Provide Commerce (NASDAQ:PRVD), yesterday exercised the option to buy 1,200 shares, and then sold them on the open market. The sales, according to the footnotes at the end of the filing, were part of a regular schedule to diversify his holdings, or what is dryly known as a 10b5-1 plan.
5. The 8-K. This common form is like your 16-year-old daughter -- sooooo misunderstood. It's not, as some suggest, the quarterly results press release. That's only one kind of 8-K. The truth is a company files one whenever there is an event of material importance -- that is, something that could have an impact on the stock price. You'd think that would mean every 8-K would generate a press release of some kind, but that simply isn't true. Sometimes firms want to keep a lid on bad news. In that case, the 8-K may just meet the minimum disclosure requirement -- because it is accessible to anyone. Other times, it just doesn't make sense to issue an accompanying release. Take this filing from another Rule Breakers pick, Akamai Technologies (NASDAQ:AKAM), for example. It's the prospectus covering the details of Akamai's acquisition of rival Speedera. Sure, the document is important. But it isn't newsworthy. So, rightly, Akamai didn't announce its availability.
A babysitter for your stocks
It might seem difficult to keep up with all of these filings. I mean, really, you could find yourself at the SEC website every day checking up on your stocks. But it doesn't have to be that way. There's a service some Fools use called EDGAR Online Pro. It generates alerts whenever a company you're interested in files something with the SEC. Unfortunately, it costs $1,200 a year. That's not terrible, but it's not cheap either.
An alternative might be to set up alerts through a free service such as Google News. Though far less precise, if you've set an alert that names your stock along with "SEC" and "filing" in the criteria, you ought to pick up most major events.
Finally, if all this just makes you tired, and all you want is to be sure you're getting the research needed to juice your returns, give any of our investing newsletters a try -- on our dime. Whether you're seeking ultimate growth, small-cap skyrockets, generous income, top-notch funds, or stocks on sale, we have something to suit your portfolio. And there's never, ever an obligation to buy.
Fool contributor Tim Beyers thinks EDGAR is proof positive that the Feds sometimes get it right. Tim owns shares of Akamai. To see what other stocks are in his portfolio, check out Tim's Fool profile, which is here . The Motley Fool is investors writing for investors and has a strict disclosure policy .
