Or maybe you’re just lazy and conclude that your patchwork functions just fine, and you even smugly think it’s close enough to perfect. Then, one day you’re standing up at your wonderful desk when it falls apart. A large wooden slab slides down to the floor, injuring your toe, and your pride. You begrudgingly realize you can’t return the desk because you broke it, and finally admit that you should have read the directions from the get go, instead of wasting money, time and saving that trip to the ER!
I don’t think this is what Lionel Richie envisioned when he was writing “Easy Like Sunday Morning” in 1977 while he was part of the Commodores.
Read The “Dayam” Risk Factors!
The investment process is already hard and much like putting that desk together. If you don’t do it right, your process just falls apart and fails to yield the knowledge needed to keep that slab in place. You need to navigate through thousands of stocks and mountains of press releases to decipher which management teams are straight shooters who hold things together and which ones are just straight up bullshitters that destroy the foundations and integrity of a company. If you’re not reading risk factors in 10K SEC filings of stocks on your watchlists, you’re making the investment process a whole lot harder and opening yourself up to a slew of completely avoidable mistakes.
Risk factors are the fine print in your investment instruction manual that too many investors ignore.
The fact that SEC filings present themselves as piles of boring pages of boiler plate language is no reason to ignore them. Once you figure how to read SEC filings and where to look for information, the process is quite easy and actually fun, much like that disciplined routine you exercised of doing math problems – you know, that one that yielded those coveted A’s in calculus. There is so much good information you can use in SEC filings to help you manage the risk of your portfolio by selling or avoiding certain stocks, and maybe even profiting by shorting them. Strive for those A’s.
When you don’t read risk factors, you only have yourself to blame when a seemingly boilerplate risk factor comes true or better yet, when a stone-cold unusual non-boilerplate risk was staring you right in the face.
Nothing drives this point home better than the case study of Yuhe Int`l Inc (GREY:YUII), a stock we were both long and short during different stretches of time at GeoInvesting.
Yuhe International was a China based company that went public in the U.S. through a reverse merger in March 2008. YUII had claimed to be the largest supplier of day-old chickens in China. The company eventually graduated from the OTC to the NASDAQ in April 2008. This is probably all you have to know to understand how badly this story is going to end.