RECENT POSTS
Wednesday, February 13, 2019
Low Latency Calcbench

Monday, February 11, 2019
Now Streaming on Hulu: Red Ink

Thursday, February 7, 2019
Early Look at 2018 Tax Decline

Wednesday, February 6, 2019
You Revised WHAT, Netflix?

Thursday, January 31, 2019
Talking About Huawei Exposure

Wednesday, January 30, 2019
Another Discrepancy in Reported Numbers

Wednesday, January 30, 2019
Finding Revised Facts: Hertz Edition

Wednesday, January 23, 2019
GE Commercial Aviation Services: Bringing Numbers to Light

Monday, January 21, 2019
Differences in Earnings Releases and 10-Ks

Wednesday, January 16, 2019
The Importance of Textual Analysis

Tuesday, January 8, 2019
A Look at Climate Change Disclosures

Wednesday, January 2, 2019
Quants: Point-in-Time Data for Backtesting

Friday, December 28, 2018
Now Showing: Controls & Procedures

Thursday, December 27, 2018
A Reminder on Non-GAAP Reporting Rules

Monday, December 17, 2018
Researching PG&E’s Wildfire Risk

Wednesday, December 12, 2018
Tracking Brexit Disclosures

Thursday, December 6, 2018
Campbell Soup: Looking Behind the Label

Sunday, December 2, 2018
SEC Comment Letters: The Amazon Example

Wednesday, November 28, 2018
Measuring Big Pharma’s Chemical Dependency

Monday, November 26, 2018
Analysts, Can You Relate? A True Story

Archive  |  Search:
The Importance of Textual Analysis
Wednesday, January 16, 2019

Here’s news you definitely want to read: academic research showing that changes in the text of a company’s Form 10-K correlate to future changes in the share price, often months in advance.

Before you say, “Well, duh,” let’s be perfectly clear. The mere fact that the text of the 10-K has changed is what correlates to future changes in share price — not what the specific changes actually are.

That is, if a company starts using more negative language in the Risk Factors or MD&A sections, it’s highly likely that the stock price will decline several months later. Likewise, a company using more positive language will also likely see its share price rise. The specifics of why the language is changing — looming trade wars, recession risk, labor shortages, materials costs — don’t matter.

So says a recent article in the New York Times, which itself is based upon academic research from Harvard Business School and DePaul University. One key point from the Times article:

The stock market rarely responded to the subtle hints in the reports immediately. In fact, it typically took several months for whatever good or bad news was embedded in the reports to be widely understood — and to move the stock market.

This delay means that there is a profit opportunity for those able to exploit it, the researchers said.

As it so happens, Calcbench subscribers can exploit those changes if you like. Our Interactive Disclosure tool lets you find specific disclosures quickly, and also lets you compare prior years’ disclosures — with color coding to help you identify what’s been added or removed. Users of our API may also be interested in knowing that this can be done programmatically as we have shown in previous blog posts.

Take a look at this example, below. We pulled up Google’s risk factors disclosure. Its 2017 10-K disclosure is on the left, its 2016 10-K disclosure on the right.

We can quickly see that Google deleted some language describing its competition from 2016 to 2017 (in red), while adding a quick line (shown in green) about investing heavily in “hiring talent” to its 2017 report that didn’t exist in its 2016 language.

To find those changes, all you need to do is press the “Show All History” or “Add Previous Period” options immediately above the disclosure panel. The most recent disclosure will always appear in plain text. Changes will appear in the prior period: additions in green, deletions in red.

Do It Quickly

There’s also that point in the NYT article that many investors apparently don’t notice or understand changes in the text for quite some time. To find a competitive advantage, then, Calcbench users can define peer groups of companies they follow, and set email alerts for when those companies have new filings.

Once you get the alert that some new statement has been filed, you can hop onto Calcbench and compare that disclosure to prior statements using our process defined above.


FREE Calcbench Premium
Two Week Trial

Research Financial & Accounting Data Like Never Before. More features and try our Excel add-in. Sign up now to try the Premium Suite.