If you can find it, it’s valuable

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Avoiding slag can be just as important as finding nuggets. Much of what you need is available for free.

As a do-it-yourself investor, especially a beginner, you don’t need to “invest” in tip sheets or investment newsletters to find the information needed to make informed investment decisions.

You should begin by taking advantage of the company’s investment materials.

Most importantly, it is important to take the time to review all of the information a company provides on its investor website, including its specific investment announcements such as semi-annual and annual reports.

The largest document a company will produce is the annual report.

I love getting my hands on the hard copy, feels alive as a hardback copy, and is usually visually pleasing. But really, it’s just as useful to read it online.

It’s the innards you’re looking for. This is where the gold lies.

The gold

Like reading philosophy, reading an annual report can seem intimidating at first.

Don’t give in.

Start with the simple things.

This is the introduction of the Chairman and CEO (Chief Executive Officer).

Read what they say carefully, Word for word and take notes and or highlight certain points in your discussion about the company that somehow ring in your ears.

Are you wondering, is the vocabulary logical? Are their words easy to understand and to the point?

Are you enthusiastic about the business or are you more defensive?

Can you clearly assess the truth of what your strategy has been over the past twelve months and what you consider appropriate for the future?

Change is not the real issue, but clarity in your strategic thinking.

Are they implicit or are they very concise? ie specific forecasts?

Do you get a sense of direction, a sense of comfort from your words?

Remember, as you read it, you are actually applying your worldly knowledge (your human AI) to the picture and taking as much as possible out of their discussion points. Do you like what you read?

Your understanding is most important. For example, if you cannot understand what the business is about at all, I suggest that you read elsewhere and find another company that is suitable for the investment.

And how is the board composed? Do they have broad industry experience, but do they add more than just governance to the company?

Challenges are opportunities

Running a business is not always easy and it may have been a difficult time for the business lately. In a situation like this, are you looking for valuable information from these company stewards as they suggest the company mitigate the challenges ahead?

What will they do to be successful, to survive and thrive in the new environment too?

This is where you need to use common sense to make judgments and decide whether to believe them or not. You have to have confidence in them in order to invest.

Expect their company valuation, whether the company is doing well or not, to have an element of conservatism in it. The latter may seem a bit harsh as a company moves forward, but conservatism acts as an insurance policy to guide the front runners. Yes, you want an enthusiastic, capable CEO, but at the same time a chairman who sees the forest from the trees, who can sense reality to keep the company running safely. They want their discussions to be in sync.

On the other hand, despite all adversity, a company will try to shed some light on the path ahead. What is the truth of their statements? Or is it all just wishful thinking?

Rinse and repeat

Now I want you to repeat all of the above. I mean, go back to the previous year and read the previous annual report or go back further. That way, your understanding of the company will take another leap forward as your mind will suddenly correlate the most recent report with the past (this will be of course since clarity is just a function of your reading awareness). That way, as your perspective of the company expands, goes deeper, you will get smarter (well, I hope so, at least). Yes, you will be an analyst.

This is learning and a virtue in the world of investment decisions. But even this challenge in learning will take time. Only you will know if the reading time was worth it. Take the time to let all the information flow into it before you make a hasty investment decision. Inevitably, you will have more questions a day or two later, so subconsciously let the mind work on the project.

Company introductions are always useful for your general knowledge and help you understand the jargon and diversity from company to company. That is why we invest, we are curious and want to absorb our thoughts into the thoughts of others through their written words. The chairman and CEO have a great responsibility to present their company in the most appropriate way.

Moments of investment clarity

A happy moment will be when these introductions vibrate in your soul. You won’t always find it in the introduction, but it is certainly a good starting point for a buy signal to show up. What essential information do you find extremely valuable? Or does the light not come on?

Here, the uncertainty in your decision-making process is why you start small, because you need to put all the information together. The more you read, the more annual reports you devote to your evenings, the better your judgment becomes.

But I almost forgot, we have only just started because an essential part of the annual report, actually the centerpiece, is further up front, the detailed financial information. That huge center section of a report can be a chore, even for a seasoned investor.

Undoubtedly, over time, you will need to get used to understanding this dense and detailed, vital corporate accounting information. I’m not going to go into detail today, of course the introduction you just read should give you an idea of ​​the details.

In fact, good company presentations will really try to give you a condensed and easy-to-understand idea of ​​money matters.

So, pause and see where your thoughts are on this matter after the CEO and Chairman have made the comments.

Are you impressed Are you all the smarter and do you sniff the finances in an easily understandable form?

I will come back to finance in more articles …

So let’s leave it at that for now. I know a lot of you are going to say, hey Tony, you’ve only just scratched the surface. And you are right. But for most, the homework above will be enough to get you started reading. Rome wasn’t built in a day. Don’t worry, I’ll come back next time to keep teaching you.

So go on, sit down, read, take your time, read again (as I invariably do), and feed your mind about possibly your next investment opportunity.


Tony Morgan ran a portfolio management business and stock brokerage, both of which were purchased by Craig Investment Partners. Today he runs a small family office that invests worldwide. You can find more articles in this series here. And the profiles of all NZX50 companies can be found here.


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