What is the first step to start value investing?

Value Investors are looking to find a wonderful company at a fair price. Often times we first find a wonderful company and then we have to sit tight for a while to get it at a fair price. But as a new value investor you first need to find that wonderful company with product you love. Read my article on how to find your company.


And the first step to start investing is read the company’s most recent annual report. An annual report is a report where the company reports the past year’s income/loss and expenses and where you can read about their future strategy and (hopefully, but surprisingly not always) about how they achieved their goals and delivered on strategy in the past year.

In USA the annual report is called a 10K. A company has annual reports and quarterly reports. 

The first time you read a report might be difficult because you have to get used to the language. But keep going because this is how you get to know about where the company have been in the past and where it wants to go in the future. If you stumble across words, you don’t understand look up the words on Google to find their meaning.

And in the beginning, it might be difficult to read through a report without falling asleep (for at least to some of us), but as you get used to read them and understand the structure it becomes much easier, and you’ll know which parts to read in depth and which parts can be speed read. You’ll also learn what a quality annual report is and what is waste of time to read. Because each company and sector and industry have their specific tone of voice.

Congratulations – you made it so far in the text – a lot of people would’ve stopped reading when they realized investing requires work. A reaction I often get from clients, friends and contacts, when they hear this, is that it’s too hard. But most people would do research before buying a car, a washing machine or a new laptop. It’s the same with buying shares in a company. You want to do your research.

Where can I find a company’s annual report?

You find annual reports on U.S. Securities and Exchange Commission’s (SEC) website in the “Edgar” database and here you can search for the company name or even better the “ticker”. The ticker is the stock code for a publicly traded company. Apple Inc for example has the ticker AAPL.

I’ve read the first report, now what?

As a value investor you’re going to read your fair share of annual reports. Because once you’ve read the most recent report and found that the company is wonderful, you’ll want to read the annual report from the year the CEO (Chief Executive Officer) became the leader of the company. The reason is because a new CEO will describe their new strategy and you’ll be able to track this strategy through the years of when the CEO started until current day. Did the CEO succeed on their mission and did the strategy change over the years?

If your read the most recent report, you don’t need to read more reports from this company if you found that this company was too difficult to understand (good job realising that! An incredibly important trait to know when it’s too hard) or that the management fail to report on their strategy or other parameters that concludes that this company is not wonderful. You can download my free checklist here to check if a company is wonderful. 

As a rule of thumb: when we’ve found a wonderful company, we want to read annual reports 10 years back to ensure that it has a great track record. Success leaves clues.

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