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Become an expert reader of the annual report in minutes
Warren Buffett said he could read an annual report in about 40 minutes.
At first I thought this was only possible if you were as great as the sage himself.
Quick reading of annual reports is not an easy task. You need to manage business language, domain-specific tips, and marketing in one document.
However, after some trial and error, I discovered some techniques to get me to read annual reports within the 40-minute time frame that Buffett talks about.
1. Listen — Don’t Read
The biggest problem I find with reading annual reports is that you can’t understand anything.
It’s all just words and numbers.
However, I’ve found that copying and pasting large chunks of text into a text-to-speech app works the best.
I think listening works better than reading difficult text because the voice nudges you to the next sentence while the text forces you to understand each sentence. If you have a lot of text and are struggling to understand it all, this isn’t the fastest way to read an annual report.
Additionally, Time magazine found that listening to audiobooks retained as much comprehension as reading books.
Personally, I download pdfs and copy and paste their contents into the Speecify app. By doing this, I can change the speed of listening to the annual reports, as some parts require more concentration than others, and also multitask by listening to the annual reports while doing mundane tasks such as conduct.
This is great news for us who don’t have much time or pay as little attention to reading annual reports as I do.
2. Read footnotes and financial statements
I read the Warren Buffett Essays and often wondered why he often referred to footnotes.
He views most of the annual report as a marketing tool and recommends that you study the footnotes.
I believe the reason is that the financial statements and footnotes are written by third-party auditors, while the rest of the annual report is written by the company’s investor relations team.
I have studied the footnotes of many companies such as Apple and I can tell you that by just reading the footnotes you can understand most of the time how a company operates.
Yes, trying to understand is daunting, footnotes are daunting and I don’t really like it either, but I really believe that if you can even understand 50% of the footnotes you have a better understanding of a company only if you try to read case studies and even its Wiki page.
So, to read an annual report quickly, skip the marketing bits and only read the parts that really tell you how a business is run.
3. Improve your understanding of accounting
The financial statements are mainly written in an accounting and commercial vocabulary.
Honestly, this is the most intimidating part of reading annual reports.
Even for me, I’ve been reading annual reports for 3 years and I still feel lacking.
But you know what?
Buffett tells us that accounting is the language of business, so if we want to be good investors, we have to learn the vocabulary.
Personally, I use Investopedia like my investment and accounting dictionary website.
When I read difficult terms like commercial paper Where interest rate swapsI use Investopedia to define the terms for me.
But, really, you won’t understand the meaning of the words after just one reading. It will take you reading several annual reports until you finally understand the meaning of a term.
Value investing is a long-term game, so start early.
Conclusions: Can you really read annual reports quickly?
Yes you can.
It will take time and practice and at first you will not understand much, but if you work hard you will understand much more than at the beginning.
Go easy and listen to annual reports rather than forcing yourself to read them.
Finally, as James Clear tells us, if you do 1% every day for one year, you will be 37% better the next year.