8-K

An 8-K is a mandatory report filed with the U.S. Securities and Exchange Commission (SEC) by a publicly traded company to announce major, unscheduled events that are important to shareholders and the financial markets. Think of it as the official “breaking news” alert for a company. Unlike the scheduled quarterly (10-Q) and annual (10-K) reports that provide a comprehensive look back, the 8-K is filed in near real-time—typically within four business days of a material event. This makes it an incredibly powerful tool for investors. For practitioners of value investing, an 8-K is a goldmine. It provides a raw, unfiltered look at a company’s evolving story, long before the narrative is polished into a glossy annual report. It's where you find the clues—both good and bad—that can signal a significant change in a company's intrinsic value, often before the rest of the market has had time to fully digest the news.

While the market often reacts frantically to the headlines of an 8-K, a savvy value investor knows the real treasure is buried in the details. These filings are not press releases; they are legal documents that must present the facts. This is your chance to be a detective and get ahead of the crowd. An 8-K can be the first sign of trouble, such as a major customer loss or the departure of a key executive. This might scare off momentum traders, but for a value investor, it could be the start of a market overreaction that creates a buying opportunity. Conversely, an 8-K might detail a strategic acquisition or a new patent that the market undervalues or misunderstands. By reading the primary document, you can form your own judgment about an event's impact on the company's long-term earning power, rather than relying on the simplified (and often sensationalized) interpretations from financial media. In short, 8-Ks help you answer a critical question: Is the company better or worse off today than it was last week?

The SEC outlines specific events that trigger an 8-K filing. While the full list is long, some of the most crucial ones for an investor to watch for include:

• Changes in Leadership and Governance: The resignation or appointment of a CEO, CFO, or other top-level directors. A sudden, unexplained departure of a CFO is a classic red flag.
• Business and Operations: Entering or terminating a significant contract, or the loss of a major customer.
• Financial Information: Announcing preliminary earnings (often before the 10-Q), taking on significant new debt, or events that could lead to bankruptcy or receivership.
• Asset Transactions: The acquisition or sale of a significant amount of assets. This tells you if the company is expanding, consolidating, or perhaps selling the “crown jewels” to survive.
• Changes in Accountants: If a company fires its auditor or the auditor resigns, the 8-K must explain why. This can be a major warning sign of accounting disagreements or financial irregularities.
• Securities and Trading: Announcing delisting from a stock exchange or failure to meet listing requirements.

Reading an 8-K is a skill. It's not just about knowing an event happened, but about understanding its implications.

The filing will have a clear title, like “Item 5.02 Departure of Directors or Certain Officers.” Don't stop there. Read the full description. A CEO's departure could be a planned, orderly retirement announced a year in advance, or it could be an abrupt “resignation to pursue other opportunities” effective immediately. The former is business as usual; the latter demands deep skepticism and further investigation.

This is where the real magic happens. The body of the 8-K provides a summary, but the exhibits contain the source documents. For example:

• Exhibit 10.1 might be the actual text of a new debt agreement. Here you can find the interest rates, covenants, and penalties.
• Exhibit 99.1 is typically the company's press release about the event, which provides management's spin.
• Exhibit 99.2 could be a slide presentation for investors.

Comparing the dry, legal language of the agreement with the optimistic spin of the press release is a classic value investing technique for uncovering the truth.

An 8-K should never be read in a vacuum. How does this new information fit with what the company said in its last 10-K or shareholder letter? If a company known for its fiscal discipline suddenly takes on a mountain of high-interest debt, you need to ask why. Also, cross-reference the 8-K with other filings. For example, if a CEO suddenly resigns (8-K), are other insiders also selling their shares (check Form 4 filings)? This paints a much more complete picture than any single document can.