An investor with a responsible strategy pays attention to their assets. Still, while an investor with a responsible strategy is someone who pays attention to their assets, following news on a company you are invested in is often not enough. Annual shareholder reports, also known as just annual reports, are an excellent tool to get past the distracting noise of third-party bias and PR spin, but many investors neglect reading these vital documents. Shareholder reports give you a window into the functioning of a company and its management. This raw look at the performance, goals, and challenges facing the company is often the most transparent view you can have of your investment and should be required reading for any investor who takes their positions seriously.
What is an annual shareholder report?
Every year, most corporations will compile a comprehensive report of their performance, revenue, goals, expenses, and plans. This is provided to shareholders for total transparency. This is separate from
form 10-k
that corporations must file with the US
Securities and Exchange Commission (SEC). While both reports will have detailed information on company performance, the 10-k is designed to audit compliance and is often hundreds of pages. Shareholder reports are designed to be read by shareholders, and so are much smaller and typically contain infographics and charts to make them more comprehensible for investors.
Where can you find a shareholder report?
Most investors seek to understand the financial and operational activities of companies, which is why shareholder reports are easy to obtain. Typically, a company will list the most recent, if not all, shareholder reports on its website with other investor relations material.
What does a shareholder report look like?
A shareholder annual report contains a lot of information but usually begins with a letter to the shareholder. This will be a general overview of how management feels the past year's performance was versus key performance benchmarks and previous goals, as well as a projection of future goals and strategies. After this will come a detailed profile of the business, usually followed by detailed financial analysis and data.
Shareholder reports are surprisingly digestible, as the board of directors and management are speaking directly to investors. In
Berkshire Hathaway's annual shareholder report for 2020, for example, chairman of the board Warren Buffet explains in lay terms why he has chosen the particular strategies he has. Warren Buffet is a respected authority in the financial world, so this example can provide great insight for readers about finance.
The shareholder report for Berkshire Hathaway tells investors 3 important things;
- What happened during the year
- Why it happened
- What are the plans to improve
Investors can hear the company's perspective on the gains, losses, and results of fund management decisions during the year. Explaining the methodology and approach enables shareholders to make more informed decisions about their investment strategy and short to long term positions in the company".
Why read a shareholder report
Annual shareholder reports give a direct look into a company's overall strategy, vision, and execution against key performance indicators. Detailed metrics about performance and execution of goals help inform shareholders how capital is being leveraged to encourage growth and returns on that investment.
They give a more transparent view of how the company is run. As an investor, your money funds the operations and therefore you have a right to certain information regarding your investment. Without the vital information from shareholder reports, making wise investment decisions is more difficult. Investing in off-market trends simply isn't enough to give you a full picture. Investing in a company is investing in the actual leadership team that makes that company work, and you need to understand how that dynamic functions.
Learning how plans are executed within a company can give you valuable insight into the potential future, and thus the fair market valuation of the company value of the company. Through this information, you can make better forecasts or predictions about whether a company is over or undervalued and why, which can alert you that it may be time to change your position and buy more or sell off.
Wise Investing Through Thorough Research
Understanding what you're investing in is the first step to making more wise investments. At Brown Investors, we
utilize data
like shareholder reports regularly in our analysis to serve as input to a comprehensive investment strategy. If you have any questions about how to understand or obtain shareholder reports for your investments, feel free to
contact us
today. Financial independence starts with wise investing, and it is our honor to help expedite that journey.