Saturday, August 20, 2011

Lesson 2: Where to find information on stocks

Most information is free and readily available. The difficulty is knowing where to look. Before we can decide if a stock is good or bad, we need some sources of information. To make things difficult, it just so happens that the loudest voices are wrong about who and what you should listen to. The places that you're most likely taking information from are news articles, analyst upgrades and downgrades, editorials, author's opinions, and the occasional, but probably best source, a reinterpretation of a statement released by the company. With the exception of the statement reinterpretations, everything here are just someone's opinions. They are opinions for which solid evidence is rarely shown. None of these are good places to look. Those who defend their beliefs the most viciously are the ones whose beliefs have the most opportunity to be wrong. If you insist that all dogs have three legs, no one would put up much of a fight with you. They'd think you were just being silly or crazy.

Here's how you find real information. Let's say you want information on
Game Stop. Jump on Google, and search for "Game Stop investor relations". This should bring you to Game Stop's Corporate Profile. Check their News Releases section. This is the golden source of credible things about Game Stop. Any real news about Game Stop willl show up here first. This is the most reliable information that you can get, as you get it from Game Stop directly. Most articles that you read are reinterpretations or watered down explanations of what you find here.

The annual reports are more valuble to read than every news article about the company combined. Annual reports are also called 10-K reports. Quarterly reports are called 10-Q reports. Annual reports tell us everything we need to know about Game Stop. For example, we can learn about Game Stop's business model. Sure, everyone knows that they sell used games. But how much money are they making from selling used games? If you go through the latest report, you'll find that only about 26% of their revenue comes from used products. However, a whopping 46% of their profits come from the used product sales. It's no wonder Game Stop would rather make you buy a used game than a new one! If you're not familiar with accounting and are confused with what that meant, don't worry. I'll teach you all you need to know in another article.

Here's page 49 of their 2010 annual report. This is incredible information that you won't find on most of the useless news articles that you're probably used to reading.
Gamestop's Operating Margins


The other place to look for information is on SEC's EDGAR. Everything related to GME that is important is stored here. By law, GME must place all their public documents convienently here. All annual reports, quarterly reports, insider transactions. It's a gold mine if you have the time to dig. Luckily, you don't have to go through everything about every company. No one has the time for this. Soon, I'll teach you what to look for so that you can breeze through the unnecessary stuff. For starters, you only need to be concerned with the 10-K's and 10-Q's.

Google finance, MSN money, and all of the others are nice, but they are often incomplete. These services pull their data from the EDGAR site using a program and they don't pull entries that are too specific to that particular company. "Used games sales" would be a useless line item for any other company. These services are good for a quick screening if you just want to see the big items like net income, or operating cash. But a deeper research must be done by looking into the official documents on EDGAR.

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