“A balancing mechanism”: Reddit users against the move to a semi-annual report

Now, those surfers on r/wallstreetbet are making their voices heard about the US Securities and Exchange Commission’s (SEC) proposal to allow public companies to publish financial statements semi-annually, instead of quarterly. They strongly oppose it.

At the beginning of May, the SEC published a proposal to change the current situation, to one that would give public companies the option to publish semi-annual reports (10-S reporting) instead of quarterly (10-Q reporting), so that companies that choose this option will publish a semi-annual report and an annual report every year.

About 18 million investors strongly oppose

According to the SEC, the move will allow flexibility for each company to choose the reporting frequency that suits it and its investors. Paul Atkins, the chairman of the SEC, said that the strictness of the rules prevented this until now. The public was given the opportunity to comment on the proposal, and Reddit users were among the quickest to respond – and their response received a lot of attention and was defined as the “best objection” on some sites.

“To the SEC: We are r/wallstreetbet, a community of about 18 million retail investors on Reddit”, this is how the response opened, and in it the surfers stated: “We oppose the proposal. We understand that at the SEC we are used to receiving response letters from people who use words like ‘stakeholder ecosystem’, and we will try to comply with that.”

The surfers write about themselves that they are “self-directed retail investors”, some of us are very good at it, and some of us, in the technical sense of the Securities Law, are bad at it. Many of us learned what 10-Q is the hard way, meaning we bought a stock, saw it fall 40% after the reports and then read the report to understand why. It’s a stupid order of operations, we recognize that.”

However, they emphasize that this is also the mechanism by which “an entire generation of retail investors taught themselves to read financial statements, and the SEC is now proposing to cut this mechanism in half.”

According to them, the proposal is based on the theory that quarterly reporting causes short-term thinking among the managements of public companies, however “quarterly reports are the most important balancing mechanism between retail investors and institutional investors in the stock market”, according to their eyes. Forum surfers point out that the institutions have experts, alternative data, tests they perform, direct access to management “and personal meetings that cost more than most of our investment portfolios”, as they defined it.

“Remember why they established the Real Estate Authority in the first place”

And what do the small investors have on the other hand? the quarterly report, and each other. “If you eliminate the 10-Q, you will not eliminate the information, but only make sure that the only people who have it are those who will perform better than us anyway,” they write, and also mention that the SEC was established in 1934 (after the crisis of 1929) “because retail investors were destroyed in a market where the people who ran the companies knew much more than the people who bought stocks.”

Referring to the issue of reducing the burden on the companies in the transition to semi-annual reporting, they write: “We would like to express, with respect, the objection to the claim that quarterly reporting is a burden that the SEC will remove from the companies so that they can focus on the long term,” and that this is not what prevents the companies from excelling and growing.

“Apple submits a report every quarter and has $900 billion in cash. Nvidia submits a report every quarter and is worth more than the GDP of most G20 countries. All S&P 500 index companies report quarterly, and the index is at a peak,” they list the clear examples. “If a quarterly report crushes American capitalism, American capitalism hides it well.”

The forum surfers summarize their response by saying that they would be happy to continue being able to know “what is happening in the companies whose shares we own, more than twice a year”.