Friday, May 21, 2010

Reading Annual Reports

The ups and downs in the markets in the last few years really got me thinking about how I invest.  I decided my research is quite superficial mostly focused on what analysts say and checking the ratios.  In an attempt to be better informed I've decided to do more reading.   Right now I'm looking at value investing which I'm a fan of.  One author writes, buying stock is buying part of a business, so you need to know as much about the business as possible before handing over your money.  If you don't understand it don't buy it.   I think Warren Buffett says something similar, like buy stock in industries you know well.


How to find out about a business?  Annual reports are a good source.  One suggestion is to reading 5 years worth of annual reports.  Among  so you can get an idea of the projections and goals management sets and how well they are at achieving them.  Annual reports aren't always the lightest reading, but if you are thinking of trusting a business with your hard earned money a few hours of reading is not much.


Since I participate in my employer's stock purchase plan, I decided to start with the annual reports of my own company and its competitors.  This should be an easier read since it's what I know well.  Also, with the monthly contributions I have a lot invested in this one stock so it's a good place to start.