Tilson – No wonder active managers can’t beat the indices – they don’t do even the most basic homework like reading a company’s 10-K!

From Whitney Tilson’s latest email to investors titled – Amazon Is Leading Tech’s Takeover of America; Hidden in Plain Sight: A Powerful Way to Beat the Market; Howard Schultz Has Something Left to Prove; Howard Schultz for President?; John Oliver on coal

1) This is a VERY important article about a phenomenon with profound, very long-lasting investment implications:

What can past market crashes teach us about the current one?

The markets have largely recovered since the March selloff, but most would agree we're not out of the woods yet. The COVID-19 pandemic isn't close to being over, so it seems that volatility is here to stay, at least until the pandemic becomes less severe. Q2 2020 hedge fund letters, conferences and more At the Read More

Why does a phone maker get into banking transactions? Why does a social network build a virtual-reality headset? Why does an online retailer buy a grocery chain?

Amazon . com Inc.’s just-announced $13.7 billion bid to acquire Whole Foods Market Inc. is just the most extreme example of a larger, more consequential phenomenon: America’s biggest tech companies are spreading their tentacles, pushing into complementary businesses in a play to sustain growth as they saturate the market for their existing goods. Led by hard-charging executives, these companies are fueled by classic ambition—combined with the almost messianic attitude of those in Silicon Valley that tech can fix every industry on Earth.


2) No wonder active managers can’t beat the indices – they don’t do even the most basic homework like reading a company’s 10-K! This study shows one of the many benefits of doing so…

Companies are a little lazy about what they put into regulatory filings. Investors are profoundly lazy about reading them.

Compare a company’s most recent annual report to its previous one, and you will quickly notice the language doesn’t change much. Hot-dog seller Nathan’s Famous NATH 0.80% has talked about the damage done to its flagship Coney Island location in 2012 in the exact same language three years in a row.

Do investors still care?


They then looked at stock performance following filings. The finding: Shares of companies that had significant changes did much worse than those of companies that didn’t. This was particularly true when it came to changes in the risk factors section of 10-Ks.

Indeed, a strategy of buying shares of companies with no significant risk-factor changes and betting against companies with major changes would have returned more than 22 percentage points more than the overall market annually.

…The stock underperformance of companies that make big changes to their risk factors suggest that, as a group, they aren’t merely updating their filings to reflect risks that investors have already learned about, but providing information about emerging ones.

What is really striking, however, is that the stock market reaction to these risk-factor changes occur gradually. Companies are providing investors with material information, and investors aren’t noticing it.

Some of that probably has to do with the form in which the information is getting provided. Annual reports are big, and getting bigger. University of Notre Dame economist Bill McDonald finds that the average 10-K filed last year weighed in at over 26,000 words, nearly three times as many as 20 year ago. That is the equivalent to the text on around 10 full pages in The Wall Street Journal, but about 100 times duller

Not that investors are trying. Mr. McDonald and colleague Tim Loughran found that the average 10-K gets downloaded from the SEC fewer than 30 times, total, on the day and day after it is filed.

3) An insightful and in-depth Fortune article on Howard Schultz:

Every year, before Starbucks’ (sbux, +1.26%) annual meeting, Howard Schultz goes to its original store at Seattle’s Pike Place Market to drink a doppio macchiato and reflect on how far the company has come in his more than 30 years there. The most recent annual gathering on March 22 was Schultz’s last during his second run as CEO. That gave the ritual added weight, and he planned a ceremonial moment to mark the occasion.

Schultz was scheduled to arrive at the store at 6:30 a.m., but he’s notorious for running early—“Howard time,” as a colleague calls it. Those playing some part knew to get there by 6:15 or risk missing him completely. One of those people was Kevin Johnson, Schultz’s chosen successor as CEO. That morning the two, both in shirt and tie, suit jackets doffed, spent a few minutes together amid the bags of beans. Schultz reminisced about the early days.

For its part, Wall Street has made its position absolutely?…?contradictory: Starbucks must prepare a new generation of leadership!! And also, Howard, could you stay just a little longer?!?

4) A side-bar on talk that Schultz might run for President (I hope so!):

Howard Schultz for President?

Beth Kowitt

Jun 08, 2017

5) John Oliver with his usual fascinating, in-depth, scathing, hilarious segment – this time on coal. What is it about coal industry CEOs? They all seem to be Dr. Evils straight out of central casting! https://youtu.be/aw6RsUhw1Q8