The best part of watching Deputy Chief Brenda Leigh Johnson is not how she collects the facts about a murder case. The best part is how she figures out why the facts are important so she can jail the bad guy. Following the clues and connecting the dots lets her solve the mystery. The end of the show is always a surprise because understanding why the bad guy did it is the key to solving the mystery.
Two company mysteries
When investing in a company, knowing ‘why’ the facts are important can be the difference between making and losing your money. The facts about a company often don’t give you enough information to make a successful investment decision without knowing the ‘why’. Look at the ‘facts’ and the ‘why’ for these two companies.
The facts for the first company: After three successive years of increasing revenues, the CEO of a company resigns after a disagreement with the Board of Directors over the location of the new headquarters.
Here is why the CEO was fired. The company’s bankers put pressure on the Board because the bankers lost confidence in the CEO. The planned move to the new headquarters is would be too costly for the company. It followed two disastrous acquisitions which burdened the company with massive debt and are hemorrhaging red ink.
The facts for the second company:A company announces losses for the third consecutive year. Much of the losses in the last year come from relocating their manufacturing plant to West Virginia.
Here is why the company relocated. Federal, state and local incentives made the move very affordable. The company will significantly lower its manufacturing, payroll and logistics expense at the new location. Grants allowed the company to purchase new state-of-the-art equipment. The company will operate more profitably with lower costs and be more competitive.
Mystery solving tools
The annual and quarterly reports companies file with the Securities and Exchange Commission can help you understand the ‘why’ about a company. The reports are free and easy to download. The SEC has an online library where you can find all of the annual and quarterly reports filed by public companies. The library is called, EDGAR and it is open to the public. EDGAR stands for ‘electronic data gathering and retrieval’. Let EDGAR help you know the ‘why’ about your investments so you can level the playing field with the pros.
Listen to some well known professionals explain why they read the annual and quarterly reports of public companies.
Know why the facts are important. Make better investments and fewer speculations.