sign up log in
Want to go ad-free? Find out how, here.

If you want to be a real investor, you need to do basic groundwork. And the basics are very valuable and what many skip. Don't. It's where you find the gold, although gold isn't everywhere

Personal Finance / opinion
If you want to be a real investor, you need to do basic groundwork. And the basics are very valuable and what many skip. Don't. It's where you find the gold, although gold isn't everywhere
Read for the gold

Avoiding dross can be as important as finding nuggets. Much of what you need is available free.

As a do-it-yourself investor, especially a beginner, you do not need to 'invest' in tip sheets or investment newsletters to find the intelligence needed to make informed investment decisions.

You should start by using company investment material to your advantage.

What is most important is to take the time to examine all the information a company will provide on its investor website, including its specific investment announcements, like its half yearly and annual reports.

The biggest document a company will produce is the annual report. 

I love getting my hands on the hard copy, feels alive as a bound copy and usually visually appealing. But really, it is just as useful to read it online.

It is the innards that you are after. Here lies the gold.

The gold

Like reading philosophy, reading an annual report can, at first, seem rather daunting.

Do not relent. 

Begin with the easy stuff. 

This is the introduction from the Chairman and CEO (Chief Executive Officer).

Read what they are saying carefully, word-by-word and take notes and or highlight certain points of their discussion about the company that kind of ring a bell in your ears.

Ask yourself, Is there logic to the vocabulary? Are their words easily understood and to the point?

Are they excited about the business or somewhat defensive?

Can you gauge the truth clearly, like what their strategy has been over the last twelve months, and what they see as appropriate going forward?

Changes aren't the real issue, clarity of their strategic thinking is.

Are they implying or being very succinct? i.e. specific forecasts?

Do you get a sense of direction, a sense of comfort from their words?

Remember when you are reading you are actually applying your worldly knowledge (your human AI) to the picture and taking what you can from their points of discussion.  Do you like what you read?

Your understanding is most important.  For example, if you cannot fathom at all what the business is about then I suggest you read elsewhere, find another investment candidate company.

And what is the make up of the Board of Directors? Do they have broad industry experience, but add something further to the company than just governance?

Challenges are opportunities

Running a business is not all plain sailing and it might have been a difficult time for the company recently.  In such a situation, you will be searching for gems of information from these company stewards as to how they propose the company mitigates the challenges ahead?

What are they going to do to be successful, too survive and thrive in the new environment?

Here you must make common sense judgement calls, deciding whether to believe them or not. You have to have confidence in them to invest.

Expect their company review, whether the company is doing great or not, to have an element of conservatism. The latter might seem a bit harsh when a company is roaring ahead, but conservatism acts as an insurance policy to guide those at the top. Yes, you want an enthusiastic, can do CEO, but at the same time a chairman who sees the wood from the trees, who can glimpse reality as it is to keep the company safely sailing. You want their discussions to be in sync.

On the other hand, a company up against adversity will endeavor to shine a light on the road ahead. What truth is there in their statements? Or is it all just wishful thinking?

Rinse and repeat

Now I want you to do all of the above again. I mean go back to the prior year and read that earlier annual report, or go back further. By doing so your understanding of the company will take another leap forward as all of a sudden your mind will correlate the recent report with the past (this will be natural, clarity just being a function of your reading awareness). Thus you will be wiser (well I hope somewhat at least) as your view on the company will expand, be more deep. Yes, you are becoming an analyst. 

This is learning and a virtue in the world of investment decision making. But again this challenge in learning will take time. Only you will know if the time read has been worth it. Take your time letting all the information sink in before making a rash investment decision. Invariably you will have more questions a day or two later, so let the mind work subconsciously on the project.

Company introductions are always useful for your general knowledge and will help you heaps in understanding executive lingo and the plethora of variation from company to company.  It is why we invest, we are curious, wanting to absorb our minds in the thoughts of others through their words written. The Chairman and CEO have huge responsibilities in portraying their company in the most appropriate way.

Moments of investment clarity

A serendipity moment will be when these introductions resonate down into your soul. You will not always find it in the introduction, but is certainly a good starting place for a buying signal to appear. What is the piece of material information you consider extremely valuable? Or doesn’t the light switch on?

Here the uncertainty in your decision-making process is why you begin in small steps, because you have to piece all the information together. The more you read, the more annual reports you dedicate your evenings too, the better your judgment will become.

But I almost forgot, we have only just begun because a significant part of the annual report, actually the heart of it, is further ahead, the detailed financial information. This huge middle part of a report can be very tedious even for a veteran investor.

Without doubt you will need over time to become more accustomed to how to understand this dense and detailed, important company accounting information. I am not going to go into detail today, needless to say the introduction you have just read should give you some idea of the detail. 

In fact, good company introductions will really try to give you a condensed and easily understandable idea on the money matters.  

So, stop and see where your thinking on this matter lies after the CEO and Chairman comments.

Are you impressed? Are you all the more wiser and get a good whiff of the financials in easily understood terms?

I will come back to the financials in further articles ahead ...

So, let’s leave it there for the moment.  I know many of you will say hey Tony you’ve only just scratched the surface.  And you are right.  But for most the above homework, starting reading, will be enough to get going.  Rome wasn’t built in a day. Don’t worry I’ll be back next time to keep teaching you further.

So off you go, sit down read, take your time, re read (as I invariably do) and nourish your mind on possibly your next investment opportunity.

Tony Morgan has run a portfolio management business and an equity brokerage, both of which were purchased by Craig Investment Partners. He now runs a small family office that invests globally. Other articles in this series can be found here. And the profiles of all the NZX50 companies can be found here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Wouldn't diy investors simply be better off investing in a total market etf? The vast majority of active fund managers underperform the market. So it seems unlikely that a diy investor will, regardless of how many annual reports they read. 


...and the biggest risk to all strategies? "The unknown unknowns"

Perhaps much derided Efficient Market Theory has some validity to it after all?

"Stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection, and the only way an investor can obtain higher returns is by purchasing riskier investments. "


Riskier investments - that is the key I guess to DIY beyond index funds.

It is fun to understand and choose your own risks, and it should be bearable when the result turns sour.

It is frustrating to follow someone else's advice or plan, and suddenly find the risks were not what you expected.


Yes, work out the risk you want to take and match that to an asset allocation. Then buy index funds that fit with that allocation.



It was never a theory, only a hypothesis and was shot down long ago.The subject is covered in depth in Thaler's Misbehaving, the making of behavioural economics.


Not sure I agree with this. Not a financial advisor, but have had several...

Invrsting in passive strategies via ETFs is a great approach if you want to save regularly and make the market average return. For most people - who don't want to spend much time, effort or mind space on their investing - that's good advice. However it necessarily can only provide average returns.

Most active managers are unable to beat the market because the size of funds they're managing is much too large, there's career risk in not just doing what everyone else is (closet indexing), and they have rules limiting their position sizes, so they can't be too concentrated in high conviction bets.

Individual investors don't face those problems, and a disciplined investor who is focused on investing in what they actually know about, dilligent in research and following companies, a student of investing, devotes a lot of time to it and manages their risk properly should be able to beat the market by a wide margin when investing over long periods.

Warren Buffett is quoted as saying if he was managing only a million, he would expect to be able make 50% a year 

One up on wall street by Peter Lynch is a good place to start when learning how to invest for yourself. By the way lynch would not recommend paying much attention to the CEO and chairman's statements.

Another idea is to have an investing strategy where you take 75% and index it, and then take 25% to put into your own investing strategy. But seriously, only run your own investments after financial advice, and only if

a. you're willing to put a lot of time in and treat investing as a hobby or game you're enthusiastic about devoting time to

b. You are good at managing the emotional side of risk taking.... If you are impulsive or have ever been prone to enjoy gambling but tend to lose, don't start running your own investing!

And c. Your strategy is to invest long term (ie not trading unless you have a maths or programming degree) with money you want to compound as savings over 5+ years




This is a good guide. Keep it up.


Young investors seem to be into NFTs atm.


What you set out is what a conviction investor should do, but I seriously doubt a less sophisticated investor can gain enough perspective from reading annual reports, to beat an ETF. 

Even if direct investing, most are better off using a reputable firms' analysis and recommendations to increase coverage, skills and diversity of thinking.

Unless they are exceptionally talented as stock pickers,  they need diversification. They should have no more than 3%-4% in one exposure and probably holding 30-40 equities - and they don't have the skills, time and diversity of thinking an investment team has to select (and deselect) the many different equities required to do that.

Then, there is access to investor briefings, which give by far the best sense of what your trying to extract from annual report narrative comments.

Let's face it, we all look good after the last ten years, but the tide is probably going out and we'll find who is now swimming naked to quote Mr Buffet.


Scroll down to the graphs on this article. After1 year, about 60% of active funds underperform passive funds. By the time you get to 10 years, this number increases to 90%. So by going active, you have a 9 out of 10 chance of being worse off than buying a passive fund. Good luck picking that 1 in 10 chance in advance.

Active vs passive performance - USA - Occam Investing


I would just like to remind you all. Investing is not all about winning, outperforming or screwing up at the opposite end.

For all DIYs the master plan is learning. By learning we may progress.  Keep in mind this matter of perspective. TM


For all DIYs the master plan is learning. By learning we may progress.  Keep in mind this matter of perspective.

Wise words. The goal is not to have a better car, a flash house, or a new wife (bit of humor here a la David Brent). The goal is the journey itself.  


Respectfully, I disagree with you about that Tony. I guess there might be some people with the time and money to learn about investing just for the sake of it and not worry about the results. But the majority of people probably aren't in that position. I'm certainly not! For me, investing is about ensuring my financial future. Learning is fun - which I why I read this site - but it's certainly not the main goal of investing. 


For me, investing is about ensuring my financial future.

That's an objective. 

Learning is fun - which I why I read this site - but it's certainly not the main goal of investing. 

You can't get to the goal without learning. You shouldn't think of them as separate entities. This is one of the problems with suburban ideas like 'house prices double every 7-10 years' and 'you can't go wrong with bricks and mortar.' You get lured into laziness, complacency, uncritical thinking skills. 


The only thing you will learn is that you don’t have alpha. If professionals who do this full time fail 9 times out of 10, what hope does a DIY investor have?


T M,


But that answer just avoids what so many here are saying. For the novice investor, it makes no sense to go down the route you are outlining rather than a small number of low-cost funds. In fact, what you propose is more likely to lead to trouble as some become to believe that they know more than they really do and it's very time-consuming.




This is the introduction from the Chairman and CEO (Chief Executive Officer).

Read what they are saying carefully, word-by-word and take notes and or highlight certain points of their discussion about the company that kind of ring a bell in your ears.

Do this with the annual report from Lehnman Brothers or Enron just before they collapsed. 

And ask yourself what it would have told you. 

I'm not saying this isn't good advice, but read the CEO's intro to 10 reports of the year just before 10 seperate companies go bust in spectacular fashion. See what you reckon. 


Agree. I skip these and go straight to the financial statements. I might end up reading these statements in 5 or 10% of companies, when the financial statements make me seriously interested, but I place about as much value on these as I do the company's number of female representatives on the board - which is to say it's interesting to see and good they focus on it, but not likely to be a way I make an investment decision either way