IFB172: How to Read An Annual Report – The Secret to Buffett’s Success

Announcer (00:02):

I love this podcast because it crushes your dreams of getting rich quick. They actually got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now

Dave (00:33):

Welcome to Investing for Beginners podcast. This is episode 172 tonight. Andrew and I are going to answer a great listener question. We got from the United Kingdom. So we’ve got a great one from England. This is from Alex. Hi Andrew. I’m a big fan of the podcast over here in the UK. I dip my toe into value investing earlier in the year after reading Warren Buffett’s snowball and then proceeding to read the intelligent investor and security analysis by Ben Graham, and then found your podcast. So I guess I’ve done this thing a bit back to front compared to most of your investors. One thing I’m struggling with is understanding what I should be getting from reading the annual reports of companies I’m interested in buying so far. I’ve read five reports and only invested in one due to some warning flags and other issues that I didn’t like in the remaining four.

Dave (01:22):

It took me several weeks to read a report because I get bogged down in reading every single word and nuance. I guess my question is, is there an easy way to read the annual reports? Is there any specific information I should be focusing on to influence my decision of whether or not to buy a company? I should point out that prior to reading the APS, I stock must already meet my strict evaluation metrics. Therefore I don’t focus on a numbers and the reports as I’ve already interrogated these in detail prior to picking up the report. I hope all this makes sense that; thanks for all you do; kind regards Alex. All right, Andrew, what are your thoughts on Alex’s great question.

Andrew (02:04):

And, yeah, it’s a great question for sure. I think to give some background information for those of you who haven’t read those books, you know, when Warren buffet talks about why he’s so successful in investing, he mentioned that he reads something like sick five, five or six hours of his day when he’s working every day is spent reading, and he reads mostly annual reports, and he also reads newspapers.

Andrew (02:34):

You know, other company filings, like quarterly reports and things and transcripts, but he mainly focuses on the annual reports. And so Alex is, is on the right path here and trying to educate himself about what these businesses are, you know, what’s the business underneath the stock. And how are you going to learn about that as a business owner? And like Buffet says, it’s