Now that you know the definition of a stock and the purpose of a company, how do you go about finding more information about a firm you may be interested in? Because knowledge truly is power when it comes to investing, your success as a stock investor depends on your ability to locate information and determine its importance. In this lesson, we'll point you in the right direction and tell you where to concentrate your efforts.
Sorting out the public filings
At first, public filings may look like alphabet soup, but when
researching a company, they are some of the most important documents you
will read. In the UK, the Companies Act 2006 seeks to promote
greater shareholder involvement and requires by law that companies
listed on the London Stock Exchange (but not, importantly, on the
Alternative Investment Market or AIM) publish an annual report, as well
as holding an annual general meeting (AGM) for shareholders and filing
their accounts within six months of the end of the financial year. In
addition to annual profit and loss accounts, a publicly-listed company’s
annual report must also contain information on, among other things,
trends and factors likely to affect the future development and
performance of the business.
This annual report is likely to be the most comprehensive and useful of the public filings you can get your hands on. It will outline a wealth of general information including business strategies and risks, executive compensation, number of employees and asset values. In addition to possessing crucial facts and figures, the annual report also includes management's analysis of the past business year and compares it with preceding years.
We suggest making the latest annual report the first stop in your journey to researching a company. A company’s website can steer you to its financial information via its investor or corporate page.
Making the most of a company website
A company website is generally a good source of information in itself.
Just plug the name of the company you want to research into the search
engine of your choice. You should find the company website near the top
of your results.
The investor section of a company's website can offer a variety of information. Copies of the public filings are usually available in more flexible, downloadable formats--such as PDF, Microsoft Excel, or Microsoft Word. Also, you can sort through the firm's press releases and examine the latest investor presentations (typically in PDF or Microsoft Power Point formats).
It's definitely worth a visit to the company website. It doesn't take long, and reading the press releases will give you some of the most up-to-date information available. Also, it may be useful to see how a company does business on the Web.
Setting up a watch list
After you've researched your first batch of companies (read the public
filings and visited company websites), it's time to set up a watch list.
How do you do this? Fortunately, Morningstar offers these services for
free. You can set up a watch list by visiting Morningstar.fi,
clicking on the tab labelled ‘Portfolio’
and clicking ‘Create’.
By creating a watch list, you'll be able to keep tabs on company news and easily find share price information. Your watch list can eventually become an integral tool in helping you make buy and sell decisions, stay organised, and keep informed.
Seeking out expert opinions
After you've become a bit of an expert yourself by sifting through the
information we've already discussed, you may want to read what other
analysts and investors have to say about a particular company. While
your investing decisions are yours to make, you might be able to gain a
new insight or angle by reading others' research. Obviously, we think
the analysts’ opinions provided by Morningstar.fi’s are a worthwhile
resource.
Avoiding information overload
You shouldn't feel bad if you can't read every article from every source
that comments on a company you're researching. In your journey to
becoming an informed stock investor, you'll almost inevitably feel
overwhelmed from time to time by the vast amounts of information
available. Fortunately, you don't need to read it all to be successful.
In fact, some information may actually harm your performance by taking
your focus away from what's truly important. That's why we've
highlighted the key pieces of information you will need to make an
informed decision.
Here's a quick step-by-step guide to becoming informed about a company:
1. Obtain the firm's annual report and really try to give it a thoughtful read. Don't feel bad if you spend a lot of time on this step. (Give it a couple of days to digest.)
2. Read through the management statements and company reports when they are released each quarter, half-year or annually (depending on the company).
3. Set up a watch list to organise the steady flow of news on all the companies that interest you.
4. Poke around on the company's website. This takes less than a half hour.
5. When time allows, visit relevant industry websites and catch up on some of the industry trends.
The bottom line
If you follow these steps, you'll be able to form a foundation of
understanding about a company in about a week. Over time, you can build
on your foundation and gain a much deeper understanding. Further, you'll
be able to weed out the news that just isn't worth your time. All told,
if you stay the course, you could be surprised how your knowledge will
grow by applying this simple process.
