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14-17 minutes

Reading is one of the most important thing to do when comes to investing. You cannot possibly invest without reading any sort or report, news or information. Imagine you buy Company A just because you saw it, without having anything to support your decision, you will most definitely loss money from this investment.

However, what shall we read, what are the contents that shall be read through before and after buying a company? First of all, you must read a company’s financial report before investing. This is to make sure that you know their business model thoroughly, and ask yourself whether will you will able to explain the company’s business model when others asked you about the company. If your answer is yes, then you passed the first reading test, which is to understand a company’s background and business.

Then, you will need to read its financial status, how did the company performed throughout the years. Obviously, it will be tedious to read from the start of the establishment of a company, but we at least need to read the financial report for the recent five years. This is to understand whether the company is earning money, and are these earnings included some one-off items that boost up the company’s profit in a year.

After reading all these reports, a total of 25 reports to be studied included 5 annual reports and 20 quarter reports for five years, you already have sufficient understanding on a company, on its business, profitability, cash flow and prospect. From here, you already can make your decision whether to invest in this company or not. Then, we can seek for some reports that have been conducted by investment banks. Although we should not take every recommendation from others when comes to investing, but investment banks can obtain some exclusive information directly from the company. Hence, we will be able to enhance our understanding, and obtain exclusive information that others will not if they are lazy to read.

Last but not least, we should also read some extra information and news. For example, if you invested in technology company, it is safe to say you need to read more about the supply and demand of technologies, CAGR of semiconductor, capital expenditures of the company’s main customer. One direct example can be given is INARI, we all know that its main customer is APPLE, hence if APPLE decided to expand their business, we know that INARI will more or less benefited from it. However, you will not know this information if you did not read the news from foreign market, and company news from APPLE.

In short, reading is a boring thing to do, for sure. However, it is absolutely essential to read more, in order to reduce the risk in investing. The more you know, the more you are confident in your investment, or the other way round, the more you know, the more you will not invest in this company.







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