If you would like to learn how to analyze & value a stock by yourself from start to finish…
We are running a LIVE course from 28 – 30 Oct for beginners.
It will cover everything from dissecting the annual reports, to valuation and portfolio sizing.
>> Click here to join the investing bootcamp for beginners
There are 63,105 stocks in the investing universe.
But only 947 firms drove close to 100% of the stock market returns.
That’s less than 1.5% of the entire investing universe.
To raise the odds of finding these winners…
I need a system to go through as many companies as possible in the least amount of time before I decide if it’s worth diving deeper into.
Here’s how I read an annual report in 1 hour.
Reading an annual report is purely to understand one thing:
The company’s business model.
That’s it.
This includes:
– how they make $$
– basic unit economics
– what products or services they sell
Fine tune your antenna to look for that.
Limit your time.
Timebox each session to 45-60 minutes.
As the saying goes, work expands to fill the time allotted for its completion.
With this in mind, it creates urgency for me to move fast before time runs out.
I become more selective of what I read in the annual report.
Which helps me remember the best ideas I need.
Ready?
Let’s dive into the nitty gritty:
1. Dissect the “Business” section
Time: 30 mins
This section helps me understand a few things:
– what they sell
– what are the prices
– how they make money
– who are their customers
From here, I can already tell whether this interests me.
If it doesn’t, I stop right here.
There’re many companies in the investing universe, you’ll always find great investments that meet your interests.
2. Read the MDA section
Time: 15 min
This helps me understand the recent results and direction of the business.
So I can evaluate whether they are executing well or not.
Often, some stuff in this section is also repeated from the “Business” section.
So I can move quickly.
3. Financial Statements
Time: 15 mins
I check for the basic stuff like:
– cash flow
– revenue growth
– cash/debt position
– gross profit margin
This helps me understand the unit economics.
BONUS Tip #1: Highlight as you read
I do this mainly to keep my hands moving.
Prevents me from falling asleep.
I highlight the parts that explain the business model and how they make money.
Then I copy and pull out all these highlights onto my notion.
BONUS Tip #2: Read the prospectus using these above steps
The prospectus is the document a company files when they go IPO.
I like to read both the annual report and prospectus, then compare them to each other.
This is especially useful to understand companies that have been around a longer time.
Because the contrast helps me see how they evolved.
For example, if you look at amazon’s S1 in year 1997—it talks about offering better prices and wide selection for customers.
In 2021, it’s still saying the same thing.
Though the words used have changed…
The essence of the mission is still there.
This tells you a lot about their consistency and sticking to their original Day 1 mission.
I hope this has been helpful to you!
If you would learn more about how to analyze a company…
Join the upcoming investing bootcamp for beginners!
It is 3x live Zoom sessions from 28 – 30 Oct, Fri – Sun
Caveat: It will be an incredibly hands on session and you must be prepared to roll up your sleeves and start analyzing businesses.
We believe that there’s no point to us simply talking and you listening.
Learning takes place only when you practice.
Sounds good?
>> Then click here to enroll yourself in the upcoming investing bootcamp
Cheers,
Thomas