In a working paper, “Last Prices,” economist professorsLauren Cohen, Christopher Malloy, and Quoc Nguyen, gathered together the annual (10-k) and quarterly reports (10-q) of publicly traded companies and discovered something investors should consider: the numbers are not the answer; the key is in the wording. Actually, the key is in the CHANGES in the wording. For example, look at the risk discussions of companies. When the wording changes, trouble’s a’comin’. For example, following the findings in this important research, the Barometer took a look at Tesla’s latest reports. Walk through the 10-q’s for the last year. In the risk discussion — watch the increasing length. The longer that discussion, well, you could draw a parallel graph for the also increasingly bizarre behavior of Elon Musk over the past year.
Figures don’t lie, but liars do figure. However, they will not risk minimizing risk. They can fool around with the numbers, but you cannot withhold increasing risk. They didn’t. It’s just that investors were so enamored of Tesla that they didn’t read. We should.