Lesson 8 of 9
Reviewing a thesis on a schedule
The failure of a careful investor is not selling too soon. It is buying well, then letting a quarter pass with nobody reading the filings.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- The failure this course is written against is not panic selling. It is buying carefully, then letting a quarter pass with nobody reading the new filings.
- The review runs cheapest first: check what moved, then read, and read the thesis document last of all.
- Three statuses, not two: holding, strained, broken. Strained means the condition still holds but is moving toward the level.
Buying a company well takes an evening. Owning it well takes every quarter after that, and the second is where the reasoning quietly stops being checked.
A review calendar across one year, for a 31 December year end
- MarAnnual review10-K: redraw the long series, diff Item 1A against last year's.
- AprProxy reviewPay, board and the votes for the year ahead.
- MayQ1 review10-Q: check what moved, diff the accounting notes.
- AugQ2 reviewSame check, one quarter later.
- NovQ3 reviewThe last scheduled review before the year closes.
- Any dayEvent-driven8-K Item 4.01 or 4.02: read it the day it is filed.
The quarterly review, cheapest step first
Check whether any condition moved. Arithmetic on figures that already exist, and it takes minutes. It also tells you where to spend the rest of the review.
Read the quarter's discussion against the last one, not alone. A paragraph that disappeared is as informative as one that was added.
Diff the accounting policies note against the prior year. A changed policy changes what every number built on it means, and this is the step that catches a false break before it happens.
Look for an 8-K under Item 4.01 or 4.02. A change of accountant, or a determination that past statements should no longer be relied on. Neither appears in any ratio.
Read the thesis document last. Reading it first loads the claims into your head, and every paragraph of the filing gets read as evidence for or against something you already believe. Reading the filing cold and the thesis afterward means the two are actually compared.
Strained means the condition still holds, but the figure has moved toward the level in each of the last three filings, or the diagnosis found the reason under pressure.
The annual review goes further
The annual report is audited, which makes it a different class of evidence from the reviewed quarterly ones. Item 1A diffed against last year's is the highest-yield hour in the calendar, since risk factors must be specific to the registrant under Regulation S-K Item 105.
The ten-year series has to be assembled from the filings themselves: Item 6, Selected Financial Data, was eliminated by the Commission's 2020 amendments, so no filing since has had to carry the old summary table. Graham's chapter 12 argument for averaging several years, in The Intelligent Investor, is why the redraw is worth the hour: a single year's per-share earnings carry special charges and depreciation choices that several years averaged do not.
Scheduled, not triggered by the price
A review that happens when the price moves is a review conducted by the price. Graham's Mr Market, in chapter 8, quotes a price every day whose mood you are free to ignore, and letting that quote set the reading schedule hands the agenda to the input with the least information in it. The filing calendar, set from the company's own fiscal year end and filer class, is the calendar on which new evidence exists at all.
Check yourself
What is the failure this course is written against?
- Selling in a panic during a decline
- Buying carefully, then letting quarters pass with nobody reading the new filings
- Reading too many filings too often
Show the answer
Answer: B.
The document is only as good as the review that keeps it current. A thesis nobody re-reads is a thesis that no longer does anything.Why is the thesis document read last in the quarterly review?
- Because it takes the longest to read
- So the filing is read cold and then compared with the thesis, instead of being read as confirmation of it
- Because the thesis changes every quarter
Show the answer
Answer: B.
Reading the thesis first loads its claims into your head and turns the filing into a search for evidence, one way or the other.Why does the review use three statuses, holding, strained and broken, instead of two?
- Because the product only supports three options
- A two-value system forces a weakening reason into holding, where it stays invisible until it breaks
- Because most reasons never change status
Show the answer
Answer: B.
Strained is what a reason usually does before it fails, over several quarters. Losing that status loses the earliest warning available.Sources
- Graham, The Intelligent Investor, revised edition 1973, chapter 8, on Mr Market, and chapter 12, on averaging several years of per-share earnings.
- Regulation S-K Item 105: risk factors specific to the registrant, not generic.
- Item 6 of Form 10-K, Selected Financial Data, eliminated by the Commission's 2020 amendments.
What this leaves out
- This lesson describes a procedure, not a frequency to adopt. How much of it a reader runs at each date is a decision about their own time.
- The filing deadlines behind the calendar are outer bounds in the general instructions to the forms. A company may file earlier, and no two holdings share a schedule by default.
- A review conducted on schedule does not make the reasons right. It makes the document current, which is a smaller and more honest claim.
- Nothing here is advice about any security.