100 Ways to Beat the Market #1: Focus on Annual Reports

HOW TO SPEND YOUR TIME

A few years ago, Warren Buffett was on the Fox Business Network discussing the sale of Berkshire’s shares of PetroChina. Fox anchor Liz Claman asked Buffett how he was able to come up with the idea to invest in PetroChina in the first place.

Buffett replied, “Other guys read Playboy, I read annual reports.“

A biography of value investor Peter Cundill was recently published entitled There’s Always Something to Do. Truer words have never been spoken. There always is something to do.

The question is are you doing the right things.

Buffett spends his time reading annual reports.  Moreover, he isn’t reading willy-nilly. He’s reading with purpose. Buffett focuses on trying to figure out how much a business is worth.

In the case of PetroChina, in 2002 Buffett figured the whole company was worth about $100 billion. The entire business was selling in the market for about $37 billion. Buffett bought $488 million worth of shares which he sold in 2007 for $4 billion. Buffett earned a 700%+ return on a half a billion dollar investment in five years by sitting in his office and reading annual reports.

How do you spend your time? How many annual reports have you read in the past week?

Being a great investor requires brutal honesty. There’s always something to distract you and get you off your game. Being brutally honest about how you spend your time is the first step to spending it on what really matters.

Focus on reading annual reports. You’ll be richer for it.

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3 thoughts on “100 Ways to Beat the Market #1: Focus on Annual Reports

  1. Fred

    I would love to hear your process for deciding which annual reports to read. There has to be some process to whittle down the to read list.

    Reply
    1. Pinky

      Agreed. I think I read somewhere that Buffett’s advice was “start with the A’s”, but that doesn’t seem like the best way to go about it. Then again, by targeting certain companies, you may not know what you could be missing.

      And now, we have the advice of “read 500 pages a day, every day”. Is that 500 pages of annual reports? If not, what should we be reading? Do financial blogs count?

      Reply

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