annual vs. 10k, what’s the difference?

Both documents contain audited financials (btw. the first thing to do in reading either document is to make sure the auditors say that the statements give an “unqualified” opinion of their audit– i.e., that they give a “true and complete” picture of company operations. If it’s not a clean audit, the opinion will typically state “except for xyz, where…”

The annual, though, is a marketing document. It’s printed in color on glossy paper, with smiling employees and customers and products portrayed as objects of desire. And it’s ok for the annual to skip over uglier stuff, say, a product recall, or loss of market share or a mass exodus by top management (which might actually be good)…

The 10k, on the other hand, can run to hundreds of pages of small-print prose, with most often no pictures. The annual is sometimes attached–usually as an exhibit, rather than part of the official report. This is because the 10-k is SEC-mandated disclosure, and may contain things that the company doesn’t want put in neon lights for copmpetitors and you and me as investors to see.

An example:

…early in my career, when I was an oil analyst, a colleague left the firm and I took over his coverage temporarily. One of his stocks had two main assets: a very simple offshore oil refinery in the Caribbean and a contract for cheap oil from Iran. The oil ended up in the US, but the company could avoid tariffs by importing refined proeducts rather than crude.

Anyway, the stock was plunging, for no apparent reason. The just-released annual was all sunshine. My numerous calls to the company headquarters were unreturned. I finally got to speak to an employee, who said simply “Look at page 73 in the 10-k,” and hung up. I did. Buried in the middle of that page was a single, small-print statement that the Iran contract had been cancelled.

Nothing anywhere else. But the company had fulfilled its legal disclosure obligation.

This is where AI comes in. I’ve thought for some time that once AI can do the tedious task of reading 10s with at least some measure of understanding, AI users will have a significant information advantage over other market participants.

I’ve recently been using Gemini to find out about the operations of a couple of companies I’m interested in. It’s surprisingly good in getting information like the case of the offshore refinery above. Eventually, Wall Street will catch on. And, although this may be too old-fashioned, my sense is that brokers are so highly trading oriented, rather than research based, that it will take longer than one might think for them to figure this out.

Even then, the game may only shift to diagnosing hallucinations faster than the sell side does.

This is about the stock market, not necessarily about my private life or yours. Could be there’s some carryover, though.

I know I do stupid things. And my 28 years of experience as a professional equity portfolio manager have convinced me that virtually all other portfolio managers also do stupid things, and on a regular basis.

To some degree, successful investors offset the clunkers that somehow slip into their holdings by selecting winners whose strong performance more than offsets the clunkiness of the clunkers. Or the winners outnumber the losers.

Nevertheless, it’s not an accident that there’s an old saw, “Ride your winners and cut your losers.”

In actual practice, however, this is a harder thing to do than one might think.

I’m writing this because I’ve had it in my head for some time that the substantial weakness in the dollar induced by the Trump administration (minus about 15% against the euro since the inauguration), coupled with the slowdown in GDP caused by tariffs and efforts to reduce the domestic workforce, have made publicly traded firms serving US consumers cheap enough to be attractive takeover targets for foreign multinationals. This would also be a convenient way of diversifying away from the the strong AI and semiconductor overweight my portfolio has had for the past year or more.

So far this hasn’t worked. Instead, the market has spread out, as I see it, anyway, into more derivative plays on the AI theme–still tech, but component suppliers, for example.

Why multinationals have no burning desire to increase their exposure to US brand names isn’t clear to me. To state the obvious, they either think the risks are too high or that chances are good that they can buy at lower prices at some later time. Either way, they seem to be saying that we haven’t yet seen the worst of the economic damage Washington is doing to the country.

To be clear, I don’t think the overall market is seeing things quite like this. Yes, it is avoiding companies hurt by tariffs, the sharp decline in the dollar and ICE activities. But it has also rotated away from pure software companies and design firms whose physical products are made by TSMC to component firms with manufacturing both inside the US and out.

J D Vance, a convert to Catholicism less than a decade ago, has decided it’s his job to bring the pope, Leo XIV, a fellow American and White Sox fan, who has been an Augustinian cleric for a half century, who holds a doctorate in canon law, and who was elected by his fellow cardinals to lead the global Catholic church, up to speed on the basics of Catholic doctrine.

I’m not sure what the stock market relevance is, but I find this odd and weird. Most of this is that Vance seems to be clueless about really basic stuff. (I don’t want to claim to be an expert on the Catholic faith, although 16 years in Catholic schools, half of them with the Jesuits, plus a whole bunch of time in Catholic and Episcopal congregations, have hopefully taught me something.) To wit,

–a big part of the pope’s job is to give guidance on faith and morals. Secretary Hegseth’s apparent instructions to troops to give no quarter and show no mercy, for example, not only seem to me to be illegal, but also very un-Christian and to deserve at the very least some comment, if not outright condemnation. So, it’s strange for Vance to say this isn’t the pope’s concern.

–Catholic doctrine traces the church’s origin to Jesus laying hands on Peter and declaring him to be the rock on which the Catholic Church is built, an association of the Catholic church with the divine that doctrine holds to remain to this day. If Leo, as the anointed successor to Peter, makes an official declaration about matters of faith or morals (which he is not yet doing), this basically means that Leo is speaking in the place of Jesus and can’t be in error. If he were to ex cathedra condemn that the 50%+ of US Catholics who now favor Trump, but appear to be slowly fading away from him, would have a harder time continuing to support him or any of his associates.

For some reason, I’m finding 2026 a much more confusing time than 2025. That’s as an American, as a former Currahee and as an investor. The proliferation of fake news only makes things more difficult.

For example: the attack on Iran makes no sense to me, nor does the US continuing to escalate. If true, and I think it is, that Trump cut off talks with Iran to limit nuclear proliferation at the start of his first term, arguably creating the situation he has now decided is intolerable, makes the endeavor a weird irony. Of course, Trump has also given Iran considerable extra clout by his systematic dismantling of alternate energy sources like wind. And social media are filled with comments by usually taciturn generals who have either resigned or been fired, whose point is the staggering incompetence of the political leadership waging this war.

Then there’s Congress, on both sides of the aisle, standing by and not doing anything–worried more about staying in power themselves (admittedly, for many, long past their sell-by date, this is probably front of mind) than their constituents.

I have to tell myself that when I start to work in the morning, I have to take off my hat as a human being and put on my hat as an investor.

–the stock market reality, as I see it, is that oil and gas is only a miniscule part of today’s publicly traded universe and we’re at/past peak world oil usage. Trump’s actions will only hasten hydrocarbons’ economic demise. No comfort for the war dead, but the economic reality that the war will benefit neither side

–there’s a certain irony in Vance’s trip to Hungary to try to prop up the Orban regime. I imagine that, if anything, it had the opposite effect. Still, Orban’s Hungary represents the Putinesque Christmas future that Trump/Vance seem to desire. From a stock market point of view, this has two main implications, I think:

—it gives a clear picture of Trump’s apparent goal, to turn the US into a new version of the old East Germany or Hungary, and

—it underlines the reputational damage that Trump and a compliant Congress are doing to the made in USA brand. Maybe this translates into a PE that’s 10%? lower that it would be if the firm were incorporated in, say, Canada or Mexico. And value investors have got to consider whether a foreign firm would bid for a struggling domestic counterpart, a key issue being how deeply impaired a US brand name might now be.

My latest positive thought is the play that has been going on for some time among the nuts and bolts component firms that provide physical parts needed in AI chips. DRAM makers, for example, who have been long regarded as a stodgy boom-and-bust commodity business, are now facing much larger AI demand than they can satisfy. Anyone who’s recently needed an SD card or drive knows what has happened to prices. The real issue, I think, is how long the shortage environment will last. Absent significant change in AI chip design, my guess is that it will be longer than the market now expects.

The worst place to be, I think, is in areas that serve the ordinary American consumer.

The $US is down by close to 20% against the euro since the inauguration. I don’t imagine a reversal any time soon. …the mid-term elections? If so, companies with costs outside the US and revenues inside will continue to struggle.

It froze the start of my post this morning, so I decided to publish and then add on.

My observation is that the apparently non-stop lack of any rational economic planning in Washington, which has made major US stock market indices the worst place to be since the inauguration, no longer has the negative shock value for either the US dollar or the S&P 500 that it had, say, this time last year.

As damaging as Trump has been for the US economy, his Iran misadventure seems to be having much more severe negative effects on the rest of the world, Europe in particular, since it is much more dependent on oil coming through the Straits of Hormuz than the US is.

My sense is that the strategy that worked so well last year–finding companies with costs in the weakening US dollar and revenues from abroad, is pretty much played out. It seems to me that, in the eternal war between concept and valuation, we’re now in a period where relative valuation will count for more than the “Big Picture.” I’d been thinking that, given the sharp decline in the $US over the past five quarters, American brand names might have a price-based appeal to foreign acquirers. While this may eventually happen, the contractionary economic policies of Washington coupled with the reputational black eye from ICE et. al., argue that this is the wrong place to be, I now think, for all but the most deep value investors.

In short, I think we’re in a pure stock picking market.

Europe is constrained to some degree by the oil shock as well as the relatively limited selection of publicly traded companies. This leaves Asia, I think, with Hong Kong as an entrance point to China, and Japan, as possible areas of interest.

As to the Magnificent Seven (not my favorite name, but a great movie), I’m not sure there was ever a coherent economic story behind it. Nvidia (which I don’t hold now) is the only one I’d consider buying. I do own a small amount of MSFT, which I’d sold in early 2000 and bought back when the Ballmer era ended. I’ve been putting it in a charitable trust rather than selling, because my cost basis is so low.