Between October 24 and 29, 1929, the world experienced the collapse of its financial markets. According to information found at the Federal Reserve, the markets peaked on September 3, 1929, closing at 381.17, then declined until July 8, 1932, when it closed at 41.22. It did not reach the 1929 high again until November 23, 1954. Regardless of the actual numbers, the markets lost 89% of their value over about three years and did not regain value for over 20 years.
Think of it this way. We currently have a Dow hovering in the range of 30,000. Imagine if our 30,000-point Dow of today would be valued at 3,300 by 2025, the same percentage drop as occurred between 1929 and 1932. That was the importance of adding clarity to financial investments in the early 1930s.
Before the crash, investors were running up the values of stock. These were both institutional investors and private individuals. Everyone was getting into the game, but many had no idea what they were doing. It gets pretty complicated about all that went wrong. Still, at the end of the day, Congress wanted to act by putting in safeguards to protect investors from making decisions about their money with as much information as possible.
In 1933 and 1934, Congress created two legislative acts to increase reporting and disclosure of publicly traded companies financial information. The Securities and Exchange (SEC) Act of 1933 was designed to create transparency in the initial issuance of stock. The SEC Act of 1934 followed with rules governing the secondary or trading market. Information was to be available to investors so they could monitor the financial health of companies openly and transparently. However, it wasn't until 1984, when computers and the Internet became more widely accessible, that the SEC created an electronic database pilot program, EDGAR (Electronic Data Gathering, Analysis, and Retrieval system). The SEC declared that EDGAR's purpose was to provide a more efficient and less costly method to access data whereby the investing public could get the information it needed. The best way to explain how amazing it is to have this information accessible online in a clear and transparent format is to show you. Furthermore, we want to demonstrate how the SEC continues to improve the clarity of information in EDGAR.
Here is an example for you to try:
1. Check out some of Walmart's historical annual reports at this address: https://archive.org/details/2004-annual-report-for-walmart-stores-inc/page/n25/mode/2up. This is how governments present data today. Unfortunately, the financial reports are in a stagnant magazine-type format. Causing you to have to look through many pages to find specific facts you may seek.
2. Next, let's see how corporations have advanced in presenting their data to investors. You will see it is vastly more efficient than these old-style reports. Finally, let's explore the EDGAR database together.
3. Copy this link into your browser https://www.sec.gov/edgar/search-and-access
4. Scroll to the middle of the page and click "Search by Company or fund name, ticker symbol, central index key (CIK), file number, state, country, or standard industrial classification (SIC)."
5. Next, go into the search menu and type in "Walmart." Its financial statements go back decades. Then click search.
6. We are first looking for the CIK 0000104169. CIK is the Central Index Key (CIK) used on the SEC's computer systems to identify corporations and individuals who have filed disclosures.
7. Click on the CIK for Walmart Retail Stores. It will take you to a list of different filings for Walmart. These include those simply FYI documents that disclose information investors might want to know, such as if management is changing or compensation for a key officer has changed. First, we want to find the 10K, which is the annual report.
8. Once you locate the 10k, and you will need to go to the next 40 listings to find it, you will notice you have two choices. The first is "documents," and the second is "interactive data." Click the interactive data button.
9. You will quickly note that on the left-hand side, you must click on the buttons and choose where you want to explore Walmart's information. This is called the classic view because it was the first generation of making financial data searchable with a programming language called XBRL. XBRL stands for eXtensible Business Reporting Language. It is a language for the electronic communication of business and financial data worldwide. It is a standard means of communicating information between companies and the Internet.
10. But it gets even better and more efficient. Next, look on the upper right-hand side of your screen. You will see text that tells you to search the next generation EDGAR system. Click it and enter Walmart in the search by link. Up will pop the next generation of Inline XBRL reporting. This allows all aspects of the financial report to be "tagged' with XBRL to allow for complete searching of the entire document. Explore this for a bit by clicking on any statements which interest you. The most recent 10k is very interesting. You will note much of it allows you to click on highlighted areas to receive more information. The disclosure is simple and clear. It is much different than the original PDF you found at the beginning of this blog post.
In the next blog, we will discuss what this clarity means for investors and how this could improve government reporting and transparency for citizens.