Hello Nick,

What a great response! You have certainly contributed meaningful thoughts to the discussion; thank you.

The 'Risk Factors' section of the 10K is one of my very favorite pieces of regulation ever passed by legislators. I found it to be critical to my success as a portfolio manager. Yes, it is true, that the categories are boiler plate, but often the specific disclosures within those boiler plate categories was, in my experience, specific to the company. I was a generalist analyst and when I would pick up a 10K for a company in an industry I had never analyzed before, the risk factors section taught me a lot about what things to pay attention to in my further researches. Also, because the risk factors section could be renamed the 'opening ourselves up to legal liability' section and was written by litigation-averse legal staffs, I found it an insightful section. Yet, most analysts do not read the risk factors...mostly because they do not read 10Ks. Or if they do read 10Ks they focus on the financial statements only. As an aside, the section I found almost completely useless was the MD&A section where usually absolutely nothing of substance was disclosed. However, that said, when there was good disclosure there it indicated to me a higher quality/more honest management team. I would read the risk factors and use it as the springboard into examining the disclosed issues more in-depth and without the anesthetized language of a company's legal team.

As for the derivatives section...that is a tough question and it dovetails with the entire "fair value" discussion, which spans more asset classes than just derivatives. My opinion there is that companies should be required to use standardized derivatives pricing models across the entire portfolio, across businesses, and across industries for disclosure. Perhaps even use multiple models for purposes of disclosure so that companies do not manipulate inputs to generate favorable appearances. All inputs need to be disclosed, including volatility, and with a justification for why those measures were chosen. Last, and this is most important, businesses should be required to report, not just end of period values, but also average values for the entirety of the period, and the range of values for the period. Too often financial firms window dress their balance sheets for end of period reporting while flaunting the lack of intraperiod disclosure. Ugh! If firms were required to quote the average values of these instruments, as well as the range of values, a lot of the b.s. would disappear. I would love to hear your thoughts on this Nick.

Yours, in service,

Jason