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“Hidden Government 100-F Documents Easily Predict Gains or Losses”

By Travis Johnson, Stock Gumshoe, August 7, 2008

Today we have the pleasure of yet another ad that includes a made-up name that sounds official …

This time, it’s the “100-F Document” — something that is filed in Washington, D.C. that will give you inside information into a company’s troubles, and let you bet against the company before it makes headlines.

And it’s all part of an ad from Dan Amoss for his Strategic Short Report newsletter — we’ve looked at these before, when we dug into what he called the “Paddle Strategy” for profiting in a bear market. To tell the truth, this ad is actually quite similar to that previous one, though I’ve not heard a lot from Dan Amoss in the interim (that Paddle Strategy campaign was back in January).

So what are we looking for?

Here’s the lead-in to the ad:

“Hidden Government ‘100-F Documents’ That Let You Predict Which Stocks Will Go up or Down

“Discover how one small group of Americans uses government-mandated “100-F Documents” to easily predict gains or losses for any household-name stock in America…

“On at least 58 different dates, each year…

“And how you can now use these same “secret” documents to post returns as high as 400–600% over the weeks ahead”

What the heck could that be? You know that we loooooove secret government documents here at … even if you put the “secret” in quotes.

But unfortunately, this secret is just a little silly, and not all that secret. You see, 100 F Street NE is the street address for the Securities and Exchange Commission right here in my home town of Washington, DC.

So yes, 100-F documents are just SEC filings. You know, the same stuff you see almost every day if you’re an active investor — 8K reports, 10-K annual reports, Form 4 insider trading filings, etc.

It’s valuable stuff, but it ain’t secret. And despite what Dan tells us in the ad, the SEC filings of this magnitude do in fact have a big impact on stocks, regardless of whether or not the news makes the front page of the paper — the active and institutional investors who most influence prices are obviously watching SEC filings of all types.

And these are not particularly secret kinds of filings, either — for the most part, he’s just talking about the SEC-filed versions of the quarterly reports that we all hear about four times a year for virtually every US public company.

Here are a couple examples he gives of how one could have potentially profited from these “100-F” document filings:

“On Sept. 5, 2007, shares of Krispy Kreme would have set you back $6.26. Sounds like a bargain for a doughnut maker that once traded near $50 — but on Sept. 6, 2007, a “100-F document” filed in D.C. revealed it could go lower. And it did, sliding to $3.24 just four days later.”

“For nearly 14 years straight, Starbucks shares looked like portfolio caffeine…soaring to $41 per share. But a deeper look at the company’s “100-F documents” revealed a slip in store traffic…and the steam was off the mug. By November 2007, shares hit $24…when “100-F documents” filed on Nov. 15 and Nov. 29 exposed more bad news. By April this year, shares hit a low of $15.66.”

We’ll take them in turn, shall we?

That Krispy Kreme filing on September 6, 2007? That was their normal quarterly earnings report, their 10-Q. And it was awful. It was filed after the market close, and any KKD investor would have doubtless noticed it. The shares collapsed the next morning, closing the following day at $3.91 (they had been over $6 before the earnings release). They did dip further after that, and were at $3.24 a few days later — but you would have been hard pressed, as an investor, to decide whether the shares would dip further from $3.91 in the next few days, or whether they might recover a little bit, and there was nothing secret about the contents of the 10-Q.

Dan Amoss is implying that the information in the SEC filing would have enabled you to profit by betting against the stock when it fell by buying put options (which is certainly less risky than shorting stocks). That’s true, to some extent, but those put options would not have been cheap when the shares had already fallen 30% or so in a day, and he does not promise to have a time machine that could take you back to the prior trading day to bet against the shares at $6.

Essentially, this is an assertion that stocks that get clobbered by very bad earnings reports or similar data releases will keep going down after they get the initial clobbering. That’s certainly frequently the case, as investors who held through the first few hours of cataclysm lose faith in the following days and the herd of analysts downgrades the stock, but it’s far from guaranteed. That particular stock had big intraday moves of 10% or more for quite a while following the earnings release, so it would have been a wild ride trying to pick entry points for short trades.

And the next one? Starbucks?

That filing was also nothing secret — the earnings release for Starbucks came out on November 15, and the more detailed 10-K annual report on the 29th. Both were bad.

And one needn’t have looked deep in the bowels of those SEC filings to note that the store traffic had slowed for the first time, freaking out investors — that was in the lead paragraph of a large number of articles from pretty much every source you could pick in the financial press (Forbes, Motley Fool, etc.) by the next morning. And the share price did fall, by about 8% the next day (it had already fallen about 40% in 2007, so that wasn’t a huge shocker). And they continued to fall … if you had decided that the fact that Starbucks had a bad year, and was losing store traffic, meant that the shares would continue to founder, you could indeed have profited (and continued to profit until today) by buying some put options or shorting the stock. But that basic trend in the company’s business was publicly known, and widely discussed — some people thought it was important, other folks thought that SBUX would recover and that this was a buying opportunity, but the point is that the information wasn’t hidden in an SEC filing that few people read, it was in the regular annual and quarterly reports, and it was well-covered by the press.

So what does that mean?

Well, this is just a long-winded way of saying that Dan Fuss is apparently using fundamental analysis to decide which stocks to short — he claims to be going off of data in the SEC filings, which is smart, but his ability to read SEC filings (something you could easily do, too) does not mean that he has secret information that promises a declining stock.

If you’re looking for someone to supply you with recommendations for stocks to bet against, you might want to give Dan’s service a shot — I think he charges about $1,000 a year, and I don’t have any idea what his record is (everyone has some good picks they can cherry pick, as he does mightily in this letter, but he doesn’t say anything about his average returns and I know of no third party who could verify that record, anyway). Just don’t think that he’s going to show you secret 100-F documents that you couldn’t easily get yourself, what he’s selling is his ability to make bets against stocks based on the information in their official filings.

If you’d like a little chatter about the criteria he talks about as reasons why he bets against a stock, you could start with my earlier writeup on the Paddle Strategy — he isn’t all that specific about his strategy or what he looks for in a short bet, but I made a few guesses … of if you have things you look for that are particular stock-moving negatives, feel free to share them here.

I will say, though that Dan brings up an important point — when you’re interested in a stock it always pays to read those “100-F” filings — especially the 10-K (annual report), since it always includes, among many other things, a pretty honest assessment of what the company thinks are the risks that could impact their stock or their business. Unless you’re a technical or short-term trader who doesn’t much care about a company’s long-term fundamentals and business prospects, reading a company’s annual report should be at least the very minimum level of work you do before buying shares of stock.

Oh, and Dan also briefly teases his next put pick: “The Single Best ‘Short Report’ Play in the Market Right Now.” He only provides one clue, that this is a business that lends to small businesses, so I can’t tell you what that is — I can tell you that it is very likely to be a Business Development Company like ACAS or ALD, both of which have been discussed in this space, or one of a dozen or so fairly similar competitors, most structured as BDCs but some as REITs or corporate banks … almost all of whom have plenty of folks betting against them already.

Oh, and if you ever do want to read those 100-F filings yourself, just go to the SEC Edgar database, put in your stock ticker, and you’ll get an eyeful (the SEC also has a pretty decent guide to basic company filings and research in Edgar, if this is all Greek to you).



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Bigg Fredd
Bigg Fredd
11 years ago

Them that can't do, teach.

Them that can't teach, coach.

Before destroying the market, some comic book publishers hired "experts" to tell dealers how to run their stores. If these experts were so good, why were they willing to work for someone else, instead of running their own stores?

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