Ep661: Michelle Leder – Read the 10-K Before You Buy That Stock

Andrew Stotz 00:01
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win an investing you must take risk but to win big, you've got to reduce it ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives to join me, go to my worst investment ever.com and sign up for my free weekly become a better investor newsletter where I share how to reduce risk and create grow and protect your wealth. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guest, Michelle Leder, Michelle, are you ready to join the mission?

Michelle Leder 00:43
I'm ready to join, Sign me up.

Andrew Stotz 00:47
Well, I like your intro. It's one of the shortest intros that I get. Most people have very long intros, it's so hard to write a short one. And so therefore, I want to first of all, appreciate that. And let me introduce you to the audience. Michelle, has probably read more SEC filings than just about anyone else on the planet. Since writing her book, financial fine print, uncovering a company's true value and started her website, footnoted nearly 20 years ago, Michelle, take a moment and tell us about the unique value that you bring to this wonderful world.

Michelle Leder 01:30
So you know, what I do is I look at the footnotes in SEC filings. It's really as simple and as complicated as that. You know, there's all sorts of companies are required publicly traded companies, I'm talking about companies that you buy on the stock market, are required to disclose all sorts of information, but they're not required to, you know, tell you about what they're disclosing, right, they disclose it. And if they put it in six point font in, you know, on page, you know, 59 B, and then give you a footnote and exhibit, you know, that's they're disclosing it, right, you can think back, you know, when I first got really into this, you can think back to Enron and Enron, the basically, you know, not as detailed as we've later learned, but they basically pointed a pretty broad stroke brush on what they were doing, you know, all the way back in 1999. Before the company, you know, they it was right there in their 10k that they were involved in these crazy what they didn't call it crazy related transactions, but they basically disclose this, and it was there for the taking, but nobody really, you know, paid much attention to it. I wouldn't say nobody, but very few people paid attention to it.

Andrew Stotz 02:44
And yeah, it's basically

Michelle Leder 02:45
it's basically finding surfacing information that companies are disclosing to the public, but that few people are paying attention to.

Andrew Stotz 02:54
And I'm excited for the listeners also to, we're going to have a discussion after your story to talk about kind of the lessons that you've learned. But let me ask you, Who is it that could benefit from what you're doing. And, you know, in some ways, you're doing an obscure kind of thing to some people, they may think. But there's people that are benefiting from that, whether that's from your book, or your blog, or other services that you provide, tell us about the type of people that benefit from what you do?

Michelle Leder 03:26
Well, I think if you own an individual stock, you, you know, can potentially benefit from this, right? You know, if you're doing an index fund, probably not if all of your investing is straight indexing, mutual funds, you probably don't have to bother with reading individual SEC filings. But if you own an individual stock, you know, and if it's more than, let's say, you know, throw away money to you, then you know, this is something that could be helpful to you. And whether you use me to help you do it, or whether you just dive in on your own and go to Edgar and dive into the 10k. That's okay, too, you know, if I can share some tips with you on how to go about, you know, reading SEC filings that's, you know, part of the mission, so to speak.

Andrew Stotz 04:11
And what tell us remind us, where's the best place to start? Is it getting your book? Or is it going to your website, and what should we expect? There?

Michelle Leder 04:21
You know, the book is now almost 20 years old. So it is, you know, a little bit dated, I'm going to be honest about that. I think that, you know, where do you start on the tips. You know, I just did a webinar, you know, an online webinar last week that talked about how to read the 10k That might be a good place to start. You know, I'm happy to provide you a link with that for your show notes. You know, we can, you know, I think that there's a lot of you know, starting you know, starting places it's really just, you know, but I think what I also would stress is that this is not, you know, one of the challenges I guess so they come across as people are like, I just want to know what stock to buy and when to sell it. I am not your girl for that you're a woman, your person, whatever, that is not me, I'm not going to pretend to be that person. Because that's not what I do. What I'm showing you is why it's important to understand what's really going on at the company. And how this can be, you know, either save you from losing a significant amount of money, or, you know, to benefit from something that few people are paying close attention to, you know, the fact that it's disclosed doesn't mean that everyone else is reading it, it just means that it's disclosed.

Andrew Stotz 05:36
Yeah. And when you think about the lawyers involved in things these days, they just want to get everything kind of dumped out there. And if you can dump stuff out in a general sense, like the risk the list of risks for people that I teach, like in my valuation masterclass, when they first look at a company's financial filings, they're like, Oh, my God, there's so many risks here, what they don't realize is that the lawyers are dumping out all of this, and in a general sense, to try to basically say, all that is ultimately I believe, is probably cover your ass, they're gonna say what was in there?

Michelle Leder 06:10
Yeah, exactly. I mean, you know, if you want to get a real look at that, look at Walmart, you know, they haven't filed their 10k yet, because their calendar year is a little bit different, you know, their January 31, instead of December 31. But like, you know, they will disclose pretty much every lawsuit that Walmart has ever received. Now, you can imagine a lot of those lawsuits are like slip and falls, right? Or, you know, things like that, you know, shoplifting arrests, or, you know, whatever, you know, like, very minor minor things that are unlikely to bring down Walmart. But buried in there could be some more significant cases. You know, you look at, you know, last week, you know, I do this free newsletter on LinkedIn, for example, that looks at the footnote of the week. And, you know, last week, I was looking at Johnson and Johnson, if you look at, you know, they're, they're, of course, you know, a big company, they got to, you know, really, you know, the talc lawsuits have really, you know, taken a hit for them, because they, you know, brought back some significant damage awards. You know, if you go back to their 10k, what was very interesting, if you go back to their 10k, two years ago from, you know, 2020, they don't mention the word bank, you know, they they barely mentioned, the word bankruptcy, bankruptcy is not a word you want to see in an SEC filing in general, but they barely mentioned it, like, and it's kind of in passing. And then last year, they mentioned it like something like, you know, 40 times, and then this year, when they filed their 10k, it was like 90 times because they've tried to spin off the separate company to basically absorb the talc lawsuits. So there's all sorts of you know, I mean, I guess that's what I would say is like, there are all sorts of tricks that the lawyers who are preparing these filings are involved in, and there's nobody on the investor side is trying to help investors understand what these tricks are, I'd like to think that I'm that fat person,

Andrew Stotz 08:06
investor advocate, I'm wanting to tell you a story that this reminds me of I was in Hong Kong for a CFA conference. And a very eminent guy got up and spoke about the AI type of thing that they had been in creating that, that surveyed the language coming out of companies. This was a while ago, actually, and tried to predict bankruptcy. And so they went through this automated system. And everybody was pretty impressed. I think he was from Reuters, or Thomson Reuters or whatever. But and then I asked him, I had a couple questions like, how much have you spent on this, you know, and they're like, millions to develop this. And I said, So my last question is, how much better? Does this predict bankruptcy than a simple Altman Z score that was developed 40 years ago, that anybody can simply calculate, and already gives us a pretty good warning. And he looked at me, and he said, by just a small margin. I thought that was interesting. And maybe it's improved. But I would say, sometimes the old traditional tools, like an individual, like yourself reading is quite effective compared to using all kinds of AI. And I'm just curious, how do you see what's going on in the world of, you know, scanning and trying to get the language out of things versus you as a person reading and interpreting what's going on?

Michelle Leder 09:35
You know, I certainly look at a lot of the AI things and I, you know, there's a number of services that I like to think of myself as Switzerland in that sense, there's a couple of different services that are going down the AI route, and they give me access to their service so that I can look at it and kind of like I wouldn't say, beta tests might be a little bit too ambitious of a word, but that I can see what they're doing, for example, and I think that you know, There's just a lot of interesting things. But ultimately, I think the problem that I've noticed at least, is that a lot of the AI attempts are approached as a coding problem. Can we code this to predict something, but they're not coming at it from the subject expertise, like the coding is only as good. As someone who understands if you have two separate problems? Can I code this to find red flags? Yeah, you can code it to find red flags. Do I know what red flags to specifically look for? I might know some of them. But I don't know every possible red flag, who could have predicted the talc lawsuits of Johnson and Johnson that that might bring up company? Johnson Johnson is like Dow 30. Right. I mean, or it was, you know, would you have predicted five years ago that this would have brought this could potentially bring them down? If he did, you're much smarter than I am? It's you don't know what you don't? You know, this is the problem, right? You don't know what you don't know. Right? There could be a lawsuit that's making its way through the courts right now that can bring down Apple, who knows? I have no idea. You know, it's that type of thing. And so it's trying to, like predict for the unknown, it's very easy to predict when you know, when you know, what you're trying to predict, right? Like, you can do the score, and you can say, well, they file for bankruptcy, and you can get a yes or no, or, you know, relative whatever. But, you know, you know, could this particular event lead to bankruptcy? Well, if you don't know what the event is, you know, you're kind of lost.

Andrew Stotz 11:39
Yeah. It made me think that, you know, the key. Actually, what I like to call what you do is also AI, but I call it actual intelligence. And some people say more artificial versus, you know, actual or whatever. But the point that I would say is that, I would guess that you're kind of a master of progressive nuance.

Michelle Leder 12:03
Yeah, like,

Andrew Stotz 12:07
languages change just slightly, because you still have to predict it before it happens, or else you're not adding any value, I would assume.

Michelle Leder 12:15
Yeah. You know, I mean, sometimes it's just a very, you know, slight I mean, it's, it's, it's a singular, turning into a law, you know, a plural. Is it subpoena or now, it's subpoenas. I mean, that's, you know, a pretty simple thing, right? You know, it's, it's all these little subtleties that you can pick up, am I going to find every single one of them? Absolutely not. Did I predict Johnson and Johnson on the talc thing? No, absolutely not. If I wasn't, you know, it was not on my radar a couple of years ago, I remember when, like, when I first heard about it, and I thought, Oh, this is kind of, you know, interesting, whatever. But it was disclosed, like every other lawsuit, you know, like, we can estimate it, you know, working its way through the courts. We're fighting it vigorously. You know, I mean, there's language that the lawyers who disclose this stuff, use over and over and over again, and it's, it's, you know, very dolt language, right, they're trying. Remember, you're up against people who are trying to make something sound as innocuous and dull as possible, right, they're not writing at this, like, oh, this last one happened. And it could potentially blow up the company in two years. So pay attention to this, you know, they're not putting it in bolding. They're not putting you know, they're not making it in a larger font. You know, they're doing that their job is to make it sound as innocuous, boring, routine as possible.

Andrew Stotz 13:37
It's a great, great point that they're trying to distract you or I kind of picture two young men attracted to the same woman, and the one guy is talking to his friend, oh, she's not that good. And it's not that you know, and the whole purpose of what he's trying to do is throw the guy off the trail so that you can have the girl to go himself. So

Michelle Leder 13:57
I mean, one of the things I think about is I grew up in New York in the 80s. Right, and there used to be, you know, before they cleaned up New York, you know, largely cleaned up, you know, New York, there used to be these guys who would stand on, you know, different street corners. I don't know if you've been, you know, if you're familiar with this, Andrew, but they would play three card monte, right. And so three card monte was basically like a cardboard table. And they had three cards, and you had to like guess where the coin was underneath the cards. And they do like, you know, do this and do that. And like, you know, it was a total setup, it was a total scam, there was a guy who would like pretend to win big, and they would reel in someone, you know, thinking they could win, like 100 bucks on the street corner by following the car type of thing. But, you know, it's basically like, what this is what companies are doing. They're like, pay attention to this, pay attention to this metric that I'm touting, don't pay attention to that metric that like, you know, um, you know, or they're changing the metrics like or they're changing what's in the metrics one year. EBITDA includes this in one year. urine includes the next quarter, it includes that. And are you really paying attention to that? Are you able to pay attention to that given, you know, if you own even a couple of stocks, if you own five stocks, for example, are you able to successfully track revenue recognition and all five quarter to quarter to quarter now multiply that if it was like 20, stocks, you know, that sort of thing. So it's really just being open to the idea that, I guess it's being open to the idea that companies are doing their best to divert your attention and trying to get you to pay attention to what they want you to pay attention to, and not what they don't want you to pay attention to.

Andrew Stotz 15:43
Yep. So I think I'm gonna call it your origin story. I think it's time to think about that. So now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to it, then tell us your story.

Michelle Leder 16:00
Yeah, so I think, you know, I was in relatively new investor, right, I had been, this is about 20 years ago. And, you know, relatively new to investing. I've been, you know, a journalist for about 10 years at that point. I'm a business journalist, but I bought some shares of quest communications, because I was covering IBM at the time, and IBM had just announced the big deal with quest. And, you know, I thought like, this would be a great opportunity to buy some quest shares. I don't, I couldn't buy IBM, because I was writing about IBM. So I think I just decided I was gonna buy quest. And, you know, I watched the shares go up, and up and up. And until they stopped going up, and then I went back, and I looked at the 10, you know, I looked at the filings, the 10k and the 10. Q. And this is actually like an appendix at the back of my book, even though it you know, it's an older book by now. But it's an appendix at the back. And it basically talks about what I learned by going through those filings. It was like a post mortem, you know, you know, basically, like, um, I went back and I looked at the footnotes, and I was like, oh, okay, you know, basically IBM, like, they booked all of our, you know, I forget what the amounts of the deal was, let's just say it's a billion dollar deal. So they booked that entire billion dollars upfront in year one, even though it was like a 10 year deal. And it was a 10 year deal with, like, a gradual, like, you know, so it wasn't like, you know, things like that, like catching stupid, you know, like, like, catching stupid stuff like that. And I think about it now, and I'm like, How did I, you know, not I didn't know how to look at it. I was like, Oh, they have this billion dollar deal with IBM, you know, and then like, booking all the revenue, year one sounds great. You know, and so that's, you know, I wound up watching quest go all the way down, I think I don't remember what I think I bought it at around like nine or something wants to go up into the 50s. And, like, finally got out of it, when it was like, maybe 12. You know, or so. So, you know, I didn't lose money. But you know, certainly could have made a hell of a lot more on it. And I would say that that was one of my worst investments. But it also led me to this career, basically, which was it prompted me to write the book, it prompted me to start footnoted based on my personal experience with quest. And, you know, in some ways, it was, you know, a learning experience, you know, and a learning experience that continues today, almost 20 years later. I mean, the book came out, and the website started in 2003. So it's, you know, in August of 2003. So, you know, in a couple of months, it will be 20 years old.

Andrew Stotz 18:47
Wow. So maybe it would be great to kind of take that 20 years of knowledge and say, for the audience's were focused on trying to figure out how to reduce risk. And let's say, for those in the audience who are buying individual stocks, and are thinking about that, maybe you could just summarize the lessons, some of the lessons that you've learned in that 20 years, you know, in addition, obviously, to lessons that you learned from that story.

Michelle Leder 19:13
Yeah. I mean, I think, you know, look, today was a 10k deadline here in the United States for large accelerated filers, you know, companies that are for companies or on a calendar year and companies that are larger companies, they had to get their 10k in today. You know, and you saw, like, a bunch of 10 K's being filed today. I mean, I was just looking, you know, Steve Madden came in today. And, you know, the equitable companies came in today and, you know, it's just like a large number of companies were basically getting their filings and today, if those are stocks that you own, you know, so you have fresh 10 ks right now, this is a great time of year and the 10k. Of course, I don't know I hope to not be so you know, too basic with your listeners. But the 10k is sort are the big document right is the annual report. But it's not the annual report that has the glossy cover, I like to say it's not the annual report, where the custodian shaking hands with the CEO to show how diverse the company is, this is the actual annual report with the numbers and the footnotes and all of that. And so I think that, you know, it's a real, you know, it's a great jumping off point, it's a great time of year to dive in, you have a fresh 10k start there, you know, and look at the risk factors, look what the company is saying about the way that it thinks about risk. You know, one of the things I was looking at JP Morgan Chase's, you know, recent 10k. And last year, their very first risk factor was, you know, COVID, basically COVID, it could be, you know, a big, huge risk, blah, blah, blah, well, this year, it wasn't not only their first risk factor, it was barely mentioned at all. Now, this is like, that only tells you a lot about JPMorgan Chase, and what they're thinking, but you know, given their role in the economy, and how large and significant they are, you know, it tells you a lot about sort of the general economic climate and sort of, you know, I mean, Jamie Dimon appears on the world stage all the time on Davos, and, you know, the, the one in the desert, you know, you know, you know, he's a major leader, and so like, when you can read, you know, you have a fresh 10k from last week, dive in and start looking at it, look at what they're saying about risk factors.

Andrew Stotz 21:34
That's a, that's a great point, you know, if you're looking for trying to understand, if you just pick out a couple of top leaders who are responsible for these, and look at the risk factors, that's, you know, such a great point, and how, how, let's say, when we talk about risk factors, as I was saying, like the the legal side of things, they just want to dump 15 different risk factors out there, to try to be able to say we cover our ass, but I'm just curious, like, when you read these risk factors, how are you trying to interpret this? Or how should the reader interpret this kind of overwhelm of negative information?

Michelle Leder 22:18
Well, I think it depends, are you an investor in that company, you know, you've got to go and you've got to look at you know, you can't read it in a vacuum, you got to see what they said most recently, the last the last 10k. There were services, you know, that do that, that black line, the filings for you, there's probably a dozen or so different services that you can pay for. If you don't want to pay for the service to black, line eight, you can go into Microsoft Word and do a lot of cutting and pasting. You know, it will be time consuming, but it can be done. And it's cheaper than you know, paying for a service. I mean, I'm thinking of, you know, different services out there that process that synthesize the actual SEC filings, and kind of, you know, dig in there, and they will tell you what is new, you know, there's a service by alpha cents, for example, that does this, there's a service by a company called in filings that's now owned by Verity. There's Sentio, which is now owned by alpha cents. You know, so there's a number of different services out there, a newer one called bedrock AI that looks at you know, that also does this as well. And you know, of course, Bloomberg, I think, does it and there's a service, you know, black line, I don't know which one it is, but any number, let's say there's like a dozen different places that you can go to get this information. I mean, to be agnostic here, because it really doesn't, it almost doesn't matter which one you were to choose, if you happen to have a subscription to one, it's not that another one is going to be 1007 times better. You know, so, you know, it's really important to look at this not in a nutshell, you know, like to basically understand, here's what they said last year, here's what they've seen this year. And how do I you know, when I would really quite frankly, I would only do this, if it's a significant position for you, if you own 100 shares in this company, and you know, you're not counting on it to pay for your mortgage or your retirement, or your kids education or fill in the blank. You know, you can probably, you know, skip it. I mean, there's certainly companies that I own 100 shares in that I'm not reading every single word of the filing. And if I'm not reading it, you got my permission that you don't have to read it either. Right, you know, but they're not companies that I'm counting on for sort of like the significant events in my life. I'm not counting on that investment to put my kid through college. Yeah.

Andrew Stotz 24:51
It reminds me I started in the Thai stock market in 1993, and financial statements and annual reports were very First of all, they weren't that easy to get. Yeah. And second thing is that they weren't, they didn't disclose much more than the numbers. There wasn't a lot to them. After the and I remember that Bangkok bank, I was a bank and list and Bangkok bank had done a bond issuance and they'd done an international one. So there was a prospectus out there, there were prospectus is out there, but the, we couldn't find it. And eventually, I found it. And when I read through all the risks and stuff like that, I was like, wow, I mean, this is like, just having this document was like a treasure trove of information for sell side analysts. Nowadays, of course, all that stuff is available. And for the banks after the 97 crisis in Thailand, they the level of disclosure became so big, I just I used to have foreign investors come to Thailand, and they complained about disclosure. I'm like, Look, if you're complaining about disclosure, you're, you're mistaken. Because basically, you couldn't even read the 150 pages of footnotes that they've produced now, you know, giving you this information. So it's just it's interesting how much information is being revealed. And I wonder maybe you could now let's move on from the risk section, which you really just sparked some thoughts in my mind about honing in on the top respected companies and people that I like in different sectors that maybe I should spend some more time looking at the risks that they're talking about, like Jamie Dimon as an example. Now, let's move on to the rest of the footnotes. If we go beyond the risk factors, then we go into, you know, things related to revenue recognition, like you've mentioned, also things related to inventory, and how they're accounting for that, or, you know, losses on accounts receivable, or you know, how they're booking fixed assets or whatever. Maybe you could give us one or two little tidbits about what you've learned from going through that part of the footnotes. You know,

Michelle Leder 26:59
it's funny, actually, one of my earliest examples, again, when I was first starting out, it was like, if you go back, and you look at eight and remember AOL, you know, some people still have an AOL account, I just emailed someone who had an AOL account today, like, really, like they still have an AOL account, okay. But anyway, you know, if you think back to when AOL was, you know, was a publicly traded company. You know, if you go back, and you look at some of those earlier filings, and you can see, you talked about revenue recognition, that is important, because it's not, it's not, the company's telling you the revenue in the numbers, right? They're saying we made, you know, we took in X number of dollars in revenue, but then you need to understand how did they count that revenue? And is it different the way they counted it this time, the next time? I mean, think back to the quest example, they booked a billion dollar contract that was like a 10 year deal in, you know, all upfront, in the first year. Now, they had to disclose that. So I mean, like, that's the type of thing I think, you know, you see, you know, thinking of the AOL example, and this is where I was going with this, if you go back and you look at some of AOL earlier, I'm talking about like, you know, long time ago, right, all of a sudden, their revenue recognition went from like one or two paragraphs to like, six or seven paragraphs to like, two and a half pages on revenue recognition. Now, you don't have to understand every single word in that two and a half, you know, page disclosure, to understand that things have gotten awfully complicated if they're going from two paragraphs to two and a half pages in a in a little over two year, and basically a two year period. Right. So things like simple tricks like that, I think can really, you know, help you even if you're not, you know, willing, you know, to do you know, sort of the heavy lifting and really dive in. But I think it's important, again, if this is a significant position for you, it's important to understand this, if it's 100 Share position, you know, you only you know, how risk averse that you are, right? Like, if losing that amount of money on whatever you own is going to be, you know, problematic to you, then you should be reading this stuff. So, I think, you know, like revenue recognition, you know, you look at inventory disclosures. I mean, you kind of hit on two of them there. I always like to look at, you know, I you know, one of the things you get to look at in the 10k is not only employee headcount, you know, you've seen a lot of news about a lot of layoffs lately, very 10k is the only time of year that you actually get bonafide information on the employee headcount. And so that's kind of an interesting little, you know, I mean, I'm not saying it's going to make a difference one way or another, whether you buy the stock or whatever, but it's in your analysis, it's important to know, they also disclose the buildings that they own, like, you know, their their properties that lists that like, what do they rent thing, what did they owning? You know? How does? How has that shifted at all? You know, there's all sorts of little tidbits in there, you know, that you can really use as any number of jumping off points, depending on what your level of interest is.

Andrew Stotz 30:14
And would you say that any particular industry is particularly good or particularly bad? Like, I don't know, real estate versus Infotech? Versus financials or something? What has been your experience there?

Michelle Leder 30:27
Well, I mean, I think like, you know, certainly, you know, I mean, the spec space has been kind of interesting to, you know, pay attention to, because it seems like their rules are a little bit different than, than other rules. You know, and certainly, that's been interesting over the past couple of years, I think that, you know, you find, you know, the tech space where, you know, for a while, like, for example, you know, when Yahoo was a publicly traded company, you know, a standalone publicly traded company, you know, there was a big disconnect between the numbers they were reporting, you know, to the, you know, like, in their, you know, for earnings, basically in revenue. And then if you actually went back and looked into the 10k, there seems to be a significant, you know, because the gap and the way they explain gap income, and, you know, all of that, I think that was kind of an interesting thing. So, you know, certainly the tech sector, you know, I think the tech sector more than others is very good at making up their own metrics, like, they'll talk about, you know, it's gone beyond EBIT, da to like, you know, EBIT DOM minus this minus that. And the way I like to think about that is when companies, you know, and certainly Warren Buffett has coined the term best, he's like, EPA, DODDS bullshit, you know, I don't know if he actually use the word bullshit, but like, he basically that's basically his is, you know, thinking on it. But, you know, if you think about it, it's like, you know, you have think about it from your own personal budget, right? Like I have, you know, my own personal budget, I have, you know, I have X number of dollars coming in each month, and X number of dollars going out. But if I didn't have to pay for, let's say, my car payment, or my mortgage, or marketing expense for whatever, you know, buying some lipstick for to appear on a podcast. I'm just using that as a silly example. But anyway, you know, if these are things that like companies will exclude, that looks good, their marketing expense, though, exclude their legal expenses, it's like, almost like there's no bounds on what they feel that they can exclude as an extraordinary expense, right? You know, a legal settlement, or whatever. And so you really need to be paying attention to the stuff if this is a significant, you know, position for you.

Andrew Stotz 32:49
Yeah, it's, I must admit, you've gotten me kind of excited. And I, I, I used to spend a lot of time reading the notes of financials and in my valuation match, because we just started really introduced that. And I think I want to do more with that. And so I'm thinking about it. And so the last question I would have is, are there is there any, I've asked you about sectors, but now I want to ask you just is there any particular leader of a company that you think, like, I'm thinking of Jamie diamond as an example, but where, or a company that you just think that's valuable? You know, that's a valuable document, you know, whether that's, you know, trying to understand risk factors that are going on, you know, it is the time that they sit down and try to explain what's going on in their business, but they also we can take clues about what's happening in the overall economy, or what are the risk factors? Is there anyone that you would say, read the risk section of this particular company as a starting point?

Michelle Leder 33:57
Well, I think, you know, JPMorgan Chase is a great starting point, their tentacles are in a lot of different parts of the economy. You know, and, you know, they're pretty much a straight shooter, you know, in terms of that, and I think that, you know, I mean, you know, Berkshire Hathaway is a great other 10k. I mean, that's very straightforward, written in a very straightforward way. And kind of a football, that's more his letter, his Chairman's letter as a folksy letter. But I mean, I think, you know, if you look at some of these big companies, you know, I would look at, you know, how, what their approach is, you know, to it, because they spent a lot of time and thought on it. You know, but just, you know, I mentioned the 10k is only because there's a lot of 10 ks right now, and today happens to be a deadline day, but, you know, there's other filings that you should be paying attention to, I mean, really, there's like, you know, at the bare minimum, if you own an individual stock, you have 310, Q's, the 10k and the proxy statement, you know, so now that the TENCATE deadline is over with for the most part, you're gonna start to see the proxy statements. I think proxy statements are really important. Because, you know, one, you know, I joked around that they're the sexiest document in the SEC. I don't know what that says. But it's maybe sexy, and SEC should not be two words that go together. But I mean, it is, you know, the only document where it really provides detailed disclosure on compensation. You know, I was just looking at, for example, and this wasn't in the proxy statement yet, but it was an 8k, and so 8k is in the other filings, and those are sort of the in between filings that happen, you know, when a company discloses something, so you know, I mean, they just disclosed, for example, if you look at made med up, that they, you know, they they've been spending $10 million a year to provide personal security, they give basically, Zuckerberg $10 million a year for to spend on personal security, you know, for him, and they just increased that by 40% to $14 million. Now, that wasn't an 8k. If I own Mehta, I would be interested in that information, because I'm like, Huh, okay. So, you know, they make a big deal. I mean, this is, again, that shell game, right, they make a big deal about he only gets $1 in salary, but he's getting $14 million is to cover like, you know, I don't know, former Mossad agents, and whoever else, you know, so I think, you know, it's again, it's like pay attention, you know, the company's trying to tell you pay attention to this, not this, you know, I don't I didn't see anything about this 14, you know, increasing it. And certainly not about increasing it by, you know, 40%, there was another filing that I saw a couple of weeks ago, Bright Horizons, there were a major provider of daycare centers here in the United States. Now, daycare, you might have seen the news recently, daycare is a major issue in the United States, I can tell you being you know, a parent, you know, when I had to provide daycare for my child, that's a huge expense, it could be upwards of $3,000 a month to get anything close to quality care, which is a lot of money for a lot of people, right, especially after tax dollars. And so there was a filing from this, you know, CEO, and they were increasing the guy's salary by 27%. And they were giving him like, a hefty, you know, stock award, and I look at this, and I'm thinking like, Hmm, maybe they could be paying the daycare workers a little bit more, or, you know, perhaps using the money. I mean, is it going to be materially different to the CEOs life, that they're increasing the salary by 27%? You know, that's a significant increase. Right, right. You know, no, I wouldn't have cared about it. If it was like, you know, whatever the inflation, let's say, even if it was 7%, but 27%, that seems like an excessive increase, giving Mark Zuckerberg an extra 40% in security costs, you know, those sorts of things. I think, like, there's all sorts of things you can find in the filings if you really just dig in.

Andrew Stotz 38:04
And ultimately, you're creating a mosaic. And I guess your skill is being able to understand when a piece of information, obviously, as a standalone basis, a piece of information, has some value. But when you start to put that piece of information with a evolving picture, I'm guessing that's when you really come to the conclusions that are super valuable. Yes. Yeah.

Michelle Leder 38:29
Yeah. I mean, I would say that no one disclosure is like, you know, I think it's very rare. I can maybe think of like, you know, two or three examples, where a company like, you know, like, like, there was a disclosure, and it was like, Oh, my God, get out of the stock right now roofs on fire. It's almost all a mosaic, like you see this, you know, maybe it's like the like, think back, you know, this was like, about two years ago, maybe a year and a half ago, it was it was peloton, all of a sudden there, the audit committee chair resigned out of the blue that day. Okay, and the stock was trading at that time at about 120 $530 a share. And you're thinking like, Hmm, directors don't know what I get out of a stock just because the audit committee chair resigned that day? Probably not. You know, I would probably, like look at you know, I would probably consider that a red flag, but I wouldn't necessarily, you know, think about that as being like a reason to get out of the stock or short the stock. But then there were like a couple of other similar types of disclosures. And you started to realize, like, you know, like the CFO, the CEO, changed his 10 B five plan and like, there were just a couple of different things that went on. And so I think, you know, what you had is you had this sort of like, drip drip, drip and that's when you know, so yes, it's rarely one thing that will be like sort of the, you know, pants on fire, get out of the stock type. The thing.

Andrew Stotz 40:01
Okay, I'm want to ask you one last question of this discussion before we wrap up. And that question is, for my, for young people around the world, this type of students, I teach valuation too. And they don't even realize like the amount of work that needs to be done in the notes of the financials and stuff like that. What would be your advice for budding financial analysts who really want to become great in the way they analyze, and we're talking about beyond, you know, doing an Excel spreadsheets or something like that, this is about really understanding the importance of those notes, and that, what advice would you give them?

Michelle Leder 40:43
I think just start with one company one or two companies that, you know, well, I mean, you know, every company has a slightly different way of disclosing things, every company, you know, there are like, let's say, six to eight different law firms that tend to like, specialize in writing this stuff. And so a lot of the language is recycled, you know, it's not virgin language. You know, but I think start with one company, pick a company that you think, you know, well, you know, maybe you know, their story, well, maybe you're a big user of their products. Maybe it's apple, maybe it's, you know, metal, maybe it's, you know, whatever, it's something that you use on a regular basis. And see, what can you find out from by reading, you know, start with like, some of the basic filings start with the 10k, the 310. Q's, the proxy statement? What can you find, by understanding by digging into those filings? That you didn't know before? And does it make a difference? You know, I mean, you can pick up on styles, you can see, is the company more open? Or is it more, you know, like, closed, I mean, you know, these are all things that you can pick up, they're subtle signals. And I guess I would say, like, you know, reading filings is very much this is where AI comes in, you know, reading filings is still very much an art as opposed to a science. It really takes an understanding of what, it's not just like, what is the company trying to, you know, it's basically, the company is saying this, but what are they really trying to tell me? So it's almost like reading like, intuiting, the meaning behind what they're trying to disclose. And that, you know, takes experience, quite frankly, it takes, you know, I've been doing this, I like to say, I've been doing this, you know, just about 20 years, and there's still things I learned about, you know, things that surprised me about filings every day.

Andrew Stotz 42:31
Progressive nuance, yes. That's great advice. And I have to admit, you know, I, you really inspired me, and I've been thinking about, you know, for this podcast, we're all about reducing risk. And I've been thinking about, you know, also in my upcoming next bootcamp, that I really need to spend more time talking to them about reading and reading these filings. And one of the things that I would say is that it's not a common thing. And whenever you find that most people aren't doing it, you find that there's an opportunity to differentiate, there's an opportunity to gain. And so I think you have opened up the window of that opportunity for myself and my listeners, and as a result, also for my students, because I'm going to talk more about this particular interview, and our discussion. So I appreciate that very much. My last question for you. Yeah. What is your number one goal for the next 12 months?

Michelle Leder 43:31
Wow. I think, you know, if I'm being honest, it's I had to I recently came back from a long hiatus. My mom, my mom was very sick for a number of years. And I had to put my site on hold for about four years, it was basically on hold for 2018 to 20. I really only just started back up in November of 2022. And so, you know, that was a personal choice. I feel incredibly fortunate that I was able to take that time, and spend with my mom when she was sick, and she needed me. But now that she's passed away, I think that I'd like to try to, you know, focus a lot more on my business again.

Andrew Stotz 44:14
Well, it's great that you had the opportunity to spend that time. I brought my mother to Thailand six years ago when my father passed away. And she's my number one listener. So and my mom, exactly. And I remember a friend of mine, who basically I he had taken care of his mom in Thailand, and I asked him, his name's Robert, I asked him when I was in the US with my mom and my dad had just passed away and I asked him, you know, what, what your thoughts or your advice about bringing my mom there? He said, it's going to be challenging. It's going to be hard. It's going to you know, change your life, but it's something that you will never regret. Yeah. And so I appreciate, you know, what you've shared and the time that we can spend in I would say, in my case, six, almost seven years now that my mom and I've spent from her when she was 78 Till now, you know, 8485 getting to 85. It's like, I can't even really remember my mom and my relationship before that, because it's so much deeper and different now, from spending that time together. And I just said, he, he just said, you know, you're never gonna regret it. And I don't regret a minute of it. So hats off to you for doing that. And also having the opportunity to that do that, because not everybody has that opportunity. So well, thanks. Yep, listeners, there you have it another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. If you've not yet joined that mission, just go to my worst investment ever.com and join my free weekly become a better investor newsletter to reduce risk in your life. As we conclude, Michelle, I want to thank you again for joining our mission and on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Michelle Leder 46:21
Thanks for having me on. Andrew. I think that, you know, life is a learning experience. And I'm glad that you get this time to spend with your mom. That sounds you know, in the end, it's not about you know the money it's about the quality of your relationships.

Andrew Stotz 46:38
Well, ladies and gentlemen, that is a wrap on another great story to help us create, grow and protect our wealth fellow risk takers, let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hosts Andrew Stotz, saying take care of your mom. I'll see you on the upside.