Sentieo: a better way to perform due diligence

Since January 2015, I’ve been using a research platform called Sentieo (website).  The main attraction of Sentieo is “Document Search”, a tool that searches through EDGAR filings, investor presentations, and conference call transcripts at the same time.  It allows me to find key pieces of information that I otherwise would not find.

For short selling, Sentieo is incredibly useful since almost all of my short selling involves tracking down scumbags.  Much of my work is spent searching through SEC filings for names of people, company names, and addresses.

My history with Sentieo

I first heard about Sentieo when one of their (former) partners cold emailed me in January this year and tried to sign me up for a free trial.  Because the email seemed too marketing-ey, I ignored it even though it was free.  Then the partner at Sentieo emailed me again.  Thankfully, I did not ignore the email a second time.  I started using the platform and discovered the Document Search tool, which is a feature that I find incredibly useful.  I gave the folks at Sentieo a little bit of product feedback as well as bug reports here and there.  In May, they asked me to write a blog post on Sentieo.  I did.  In June, they said that they would get back to me about the blog post.  They did not.  (The blog post was positive.)

Fast forward to November, the founders of Sentieo (the Shah brothers) offered to hire me as a contractor.  I accepted.  And now, finally, I’ve had time to write an updated blog post on Sentieo.  So here goes…

Performing due diligence on people

I regularly use Sentieo to find all EDGAR documents that mention a particular person’s name.  Some of the nice things about Sentieo are:

  • The Sentieo database goes back much further than EDGAR’s free full-text search, causing me to miss fewer documents.  Often, key documents cannot be found via EDGAR’s full-text search due to the 4 year limit.
  • It doesn’t really matter whether or not the person’s middle name appears in the document.  This is a very common situation in filings.
  • Sentieo ignores hyphens in names, so I would not have to perform separate searches for the hyphenated and non-hyphenated version of a name.

Example due diligence: Iconix Brand Group

Currently I am in the process of researching Iconix Brand Group (ICON), a company whose share price has collapsed due to accounting irregularities.  The CEO, the CFO, and the COO have left the company.  Due to the company’s sketchy past, I want to know if the new CEO (F. Peter Cuneo) is competent and ethical.  SEC filings are a great place to look since Cuneo served as the CEO of Marvel Entertainment and served as a director of various public companies.  On the competency front, Cuneo steered Marvel from post-bankruptcy to its $4B+ merger with Disney in 2009 (as the CEO until Dec 2002 and later as a director).

On the ethics front, one of the key documents is an 8-K filing from COOL where Cuneo served as a director:

On December 15, 2005, F. Peter Cuneo resigned, effective as of such date, from his position as a director of Majesco Entertainment Company because of time constraints resulting from other business commitments.

cool-f-peter-cuneo-2

I can tell you that the phrasing of this 8-K is probably nonsense.  Cuneo probably did not resign because of “time constraints”.  It is highly likely that he no longer wanted to be associated with the company and/or had disagreements with management.  I doubt that Cuneo provided input on the wording of that 8-K.  To understand why, let’s look at the history of this company.

On January 31, 2005, COOL completed a secondary offering when its share price was relatively high.  In the middle of 2005, COOL lowered its guidance and got hit by a number of shareholder lawsuits.  There were some allegations of channel stuffing and aggressive guidance.  On Dec 15, Cuneo resigned.  On February 3, 2006, two other directors turned in resignation letters (both of these letters were very similar to each other).  The issue was nepotism:

I have discussed with your father certain management changes that I and
other independent directors believe should be made immediately and in the
future. During these discussions, your father could not commit to continuing his
association with the Company if we insisted upon the resignation of certain
other members of the Sutton family employed by the Company.

Because I believe your father’s continued participation in the management
of the Company is of great importance, and because I have not been able to reach
any understanding with your father as to the changes we requested, I have no
choice but to tender my resignation as director, effective immediately.

In my opinion, COOL was and continues to be a garbage stock.  (It is definitely the kind of stock that I would be interested in shorting if the market cap was above 50-100M.)  Cuneo’s past association with this questionable company is something that I would pay attention to.  To Cuneo’s credit, it seems like he behaved ethically.  Cuneo was one of the first people to disassociate himself with the company.

Ultimately, Sentieo speeds up the process of digging through SEC filings for nuggets of information such as the circumstances under which Cuneo resigned.  Instead of clicking into each 8-K manually to perform a Crtl+F search for Cuneo’s name, I can efficiently search through all the 8-Ks with a lot less mouse clicking.

Searching through very long and obscure SEC filings

When researching Kinder Morgan, I wanted to figure out what would happen if Kinder Morgan’s counterparties were to declare bankruptcy.  Knowing that ATP Oil & Gas was an E&P that declared bankruptcy, I searched through SEC filings to find ATPAQ’s counterparties (e.g. Williams).  That eventually led me to  Exhibit 10.1 of an 8-K filing by ATPAQ, which is a lengthy legal contract that describes the transfer of contracts to the buyer of some of ATPAQ’s assets.  Without Sentieo I likely would not have looked through SEC filings for that document, given how tedious it would be to look through 8-Ks and all of their exhibits.  Having to click into all of the exhibits is very time-consuming.  Without Sentieo, I probably would have tried a different route (e.g. look for answers on Google).

Generating actionable ideas

On the short side, I look for scumbags by searching for names in EDGAR filings.  In rare cases, scumbags’ names also appear in investor presentations.  This can happen if the person is a stock promoter who runs an “investor relations” firm.  Sometimes scumbags hide their names, so I have to find them through addresses instead.  Oftentimes, scumbags will lead me to other scumbags because these guys network extensively.

Here are some ways in which Sentieo saves time and/or improves the research process:

  • For addresses, Sentieo ignores punctuation.  Also, I can specify the search sensitivity (how far words can be apart from one another).  This allows Sentieo to be resilient against variations in addresses.
  • The user interface saves a lot of time.  There is a lot less mouse clicking, typing, and waiting for documents to load.  Sentieo will show snippets of a document containing a person’s name.  I can read these snippets before the actual document itself is finished loading.  This is nice because lengthy 10-Ks can take several seconds to load before the entire document is searchable via Google Chrome’s Crtl + F search.
  • The ability to simultaneously search presentations allowed me to spot a pump and dump that I otherwise would not have found.
  • Often with searches, I need to scrub the data for false positives.  The snippets allow me to quickly figure out whether or not the document is relevant.  This is a huge improvement over EDGAR full-text search because it does not hide information behind pop-up windows.
  • Sentieo can summarize all of the tickers mentioned.  If I were to use EDGAR’s free full-text search, this is where most of my time would be wasted.  If there are hundreds of results, I would have to read through every company name to make sure that I did not miss a company.

In addition to researching names and addresses, Sentieo can be used for generic screens such as companies that talk about “investor awareness”.  Investor awareness is often (though not always) an euphemism for paid stock promotion.  “Investor awareness” is an excellent screen for finding pump and dumps. Similarly, you can run screens for phrases like “investor awareness campaign” and “investor relations campaign”.  The first result of the latter screen is a hilarious 8-K from Galena Biopharma.  An investigation found that GALE did not hire DTG with the “specific intent to increase the price of the Company’s stock”.

gale-hilarious-8k

You can also run novel screens such as companies with verbal agreements (blog post).  Sentieo is one of the main reasons why my spreadsheet of potential short ideas is well over 1,000 tickers.

Accounting comparisons

Sentieo can be useful to quickly figure out how other companies handle the accounting on a specific issue.  It can also be used to quickly find comparable situations.  For example, I used Sentieo to compare RH’s actual sales returns (as a percentage of revenues) to other companies that report actual sales returns.  This made it obvious that RH’s sale return numbers are an outlier.

Supposedly ‘non-material’ disclosures of technical information

Resource stocks will sometimes disclose key pieces of technical information in investor presentations and SEDAR filings (e.g. technical reports and Annual Information Forms).  However, they rarely repeat these disclosures in EDGAR filings.  They may also take investor presentations down from their website.  In one situation, I noticed that Sentieo found a useful piece of technical information (e.g. the b-factors behind oil and gas reserve estimates) that I could not find on EDGAR or the company’s website.  (This company does not file on SEDAR.)

This is one of the ways in which Sentieo can help you find information that you otherwise would not find.

Pricing

There is no list pricing; contact sales for a quote.

The bottom line

Is Sentieo right for you?  The way I look at it:

  1. If you search through SEC filings a lot, Sentieo saves time.  Basically, you are trading money for time.  You have to figure out for yourself whether or not that trade makes sense for you.
  2. Sentieo can allow you to perform research that you otherwise wouldn’t perform.  You will occasionally find important documents that you otherwise would not find.
  3. For short selling, Sentieo is extremely compelling.  A lot of my short selling involves finding connections between scumbags via SEC filings since the filings contain names and addresses.  Filings also typically contain information about dubious accounting practices, related parties, D&O insurance, verbal agreements, “investor awareness”, etc. etc.

To get a free trial, go to Sentieo.com and sign up.  You will get a trial account faster if you use a business email instead of a Gmail/Yahoo account.

 

*Disclosure:  No positions in ICON, COOL, or GALE.

Advertisements

8 thoughts on “Sentieo: a better way to perform due diligence

  1. This looks like a great tool, I was happy to check it out. UNTIL I got to pricing, no list pricing? Please, we live in the age of SaaS, drop the used-car lot let’s make a deal pricing.

  2. Glenn—thanks for the post. Have you ever used CapIQ? I’d be curious to hear how Sentieo compares, as I believe CapIQ has similar functionality. Thanks!

    • I haven’t used capIQ though I’ve heard other people describe it to me.

      From what I understand: while some of the feature set overlaps, a lot of it doesn’t overlap. I think that if you get a trial of both products, you will see where Sentieo is much better than CapIQ (e.g. the search should be better) and where CapIQ is much better than Sentieo (e.g. bond data, CDS, etc.).

      *If you can afford both, getting both might be worth it as the two platforms do different things.
      *If you are on a budget, then you should get trials of both and figure out which one is more cost-effective for what you do. (You may find that Sentieo is priced more aggressively versus capIQ.)

      ***I’m trying to be neutral here and not disparage another company’s product that kind of competes with Sentieo.

      • Both Sentieo and Alpha Sense do document search. To me, the feature sets overlap heavily. Sentieo also happens to do things other than document search, which I did not cover in my blog post (because I mainly use the Document Search). Sentieo has some conveniences in the document viewer, e.g. you can perform 1-click table exports.

        They both have their quirks.
        By default, AlphaSense doesn’t search the first few pages of large documents or exhibits. Secondly: AS’ algorithms will remove search results; this may not be obvious to the user. Sometimes its algorithms will generate false negatives, causing you to miss a key piece of information. You can avoid this by disabling the NLP stuff by putting quotes around the words of your query. (For what I do, I would probably want the NLP stuff turned off by default. I don’t mind the false positives and I can’t stand the unnecessary false negatives.)
        With Sentieo, you can build lists of tickers that return search results by sending Document Search results to Comparable Analysis. One of the quirks/bugs of Sentieo is that tickers beyond 30-50 tickers may get dropped from that list. So you want to be careful when building lists with over 30 tickers (there are some workarounds you could figure out, e.g. filter the list down to less than 30).

        Both have documents that the other platform does not have.

        Because I work for Sentieo, my answer may be a little biased. You’re probably better off coming to your own conclusions, e.g. get a free trial of the platform(s) you’re interested in.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s