Benjamin Graham used to say that reading an annual report was largely a “negative art” because usually something compelling about a business would make you curious enough to read the company’s financials, and then you would “disprove your idea” over the course of reading the annual report because you would often find the reason why the purported discount in the stock price was not a discount after all. It is the instances when you are unable to disprove your idea that you actually end up making the investment.
After I started this website, I would get asked: “How do you identify a good investment?” or sometimes even specifically “What do you look for in an annual report?” The answer is that some random interaction in the outside world puts an investment idea in my head, I tie it by reading the annual report, and then I usually encounter some reason … Read the rest of this article!