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Computerized Investing > July 16, 2011

footnoted.com

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by CI Staff

Accounting scandals of the past have brought to light a number of companies with questionable accounting practices. Although the issue is not as prevalent as it was during the days of Enron, there are still companies that engage in aggressive accounting, pay out excessive compensation, and practice questionable self-dealing. footnoted.com, now a part of Morningstar, takes a closer look at companies’ financial statements and routine SEC filings to find this buried information so that investors can be well informed.

The articles featured at footnoted.com are all related to SEC filings. The easiest way to keep up with the latest articles is to scan the Web page’s feed. In addition, a search bar on the top right of the page allows users to search for companies in which they are specifically interested.

A quick search for Microsoft yielded 10 results written by footnoted.com dating back to 2008. As an example of the type of information provided by footnoted.com, when Microsoft CFO Chris Liddell left the company, an article dated February 2, 2010, named “Leaving Microsoft with a nice cushion…” stated that Microsoft announced that Liddell was “looking at a number of opportunities that will expand his career beyond being a CFO.” About a month later, footnoted.com reported that Liddell will become the new vice chairman and CFO of General Motors, with an increase in salary of 33% as well as other longer-term incentives. In addition, a separate article at footnoted.com reported that in a sub-footnote (a footnote to a footnote), Microsoft reported paying $4.1 million for relocation costs for a newly hired executive.

Although some investors may locate these footnotes on their own, most individuals would not read a 10-K, or any other SEC filing, that thoroughly, especially down to sub-footnotes. footnoted.com aims at providing investors with crucial information that might otherwise be missed.

footnoted.com also provides a Pro section. According to its website, FootnotedPro uses proprietary techniques to search for hidden opportunities and potential problems. Furthermore, FootnotedPro provides information that is actionable. Though the service may be valuable, the price at which it comes may be out of the range of most individual investors. The cost of FootnotedPro is $10,000 per year or $3,000 per quarter, but it does come with a 30-day evaluation period; during this evaluation period, you can cancel your subscription for a full refund.

www.footnoted.com

Price: Free; $10,000 per year or $3,000 per quarter with a 30-day refund period for the Pro version


Discussion

George from PA posted over 3 years ago:

One of the reasons that I invest most heavily in overseas markets is that the mantra that you can depend on corporate financial statements from US companies is simply no longer true.

Since 2000, the regulators have stopped regulating and the auditors have stopped auditing. Since Enron, not a single CEO or CFO of a major US corporation has goen to jail -- even though they have practiced accounting fraud on a scale un-imagined 10 years ago.

Do you really believe that the CFO's of our financial institutions had no idea that the mortgages they were writing and reselling were worthless pieces of paper?

Plus, as a former accountant, I can assure you that it is only the accountants that really know what is going on in a corporation. Reading a financial statement is a lot like trying to guess the size of an iceberg from what you see above the waters...

So, the other risk reductuion strategy that I use is to invest mostly or solely in equity funds so that any single company comprises less than 1% of my holdings. In addition, by using mostly actively managed funds, I have the advantage that the fund manager, if he is doing his job can actually visit the corporation he is investing in and interview the management. (Sort of like looking under the water at the rest of the iceberg).

That doesn't eliminate corporate risk -- but it does tend to reduce it.

While that kind of strategy tends to reduce the chance of me seeing any large gains, I am hoping that is also reduces the chances that I will incur large, irrecoverable losses.


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