How to start studying a public company for a private investor?

The Russian stock market trades shares of hundreds of issuers that operate in various sectors of the economy. For information on how and where you can find a complete list of them, read here .

The work of a fundamental investor is both complex and interesting – today you are studying the features of transporting liquefied natural gas, and tomorrow you are trying to understand how weather conditions affect the gain in live weight of salmon on fish farms. Every business is unique in its own way, so learning about a new issuer is like reading a fascinating book. And the moment of the first acquaintance here is extremely important.

Suppose you are a novice investor who decides to independently select companies for investment based on fundamental analysis. And you even have a list of issuers from which you will start looking for candidates to get into the investment portfolio.

I will share my algorithm for working with new issuers, which has developed over several years, but I am sure that over time you will develop your own approach.

I do not recommend starting your study with Wikipedia – often the information there is outdated and incomplete, therefore it is not suitable for the initial assessment. Also, I don’t look at other people’s reviews until I do my own research into the core business of the company. So the first impression of the business is not distorted by someone else’s opinion, subjective and often written in the context of specific circumstances.

I start the study from the source – that is, from the company’s website, to find out what the issuer is ready to tell about itself.

We select the desired address of the issuer in the line “Address of the page on the Internet” in the company card on the website of the news agency.

For example, we need a Lukoil website . Its address in the issuer’s card on the news agency’s website is in the last line “Internet page address”.

Sometimes a company may have several sites – one for investors, the other for clients. This option is often found among retailers, developers and other companies that actively promote their products and services on the Internet.

In this case, I start with the investor site, but over time I move to the client site to better understand what, how and at what price the company offers external buyers.

When you get acquainted with the sites of different issuers, you quickly realize how different they are from each other. Already by the way the site looks and what is posted on it, you can make the first observations and conclusions.

• How modern does the site look and is it easy to find the information you need?
• How often does the company publish information and update data?
• Is the business willing to share information about itself or prefer to hide it?

Based on this, you can indirectly get an answer to another important question – is the business management interested in attracting private investors, or is it not interested in it.

I advise you to study the issuer’s website in full over time. During the first review, I mainly focus on two sections (titles and content may vary for different issuers).

• “About the company” — key information about the company and its activities is often collected here, the history of the formation and development of the issuer is told, values ​​and mission are declared, achievements and business prospects are described.
• “About the business” – this section usually gives a brief description of the segments and main production assets of the company; the map may indicate the geographic location of key industries and points of sale; tells who runs the company, as well as what products and services it offers.

Next, we go to the section that must be present in all public companies – “Investors and Shareholders”. Here are collected the main materials that the issuer wants or should publish.

The investor has to refer to this section quite often, so it is important to learn how to quickly find it through search engines. To do this, enter the name of a particular issuer and the phrase “investors and shareholders” in the search box. Usually the search engine gives the desired link in the first line.

The section “For investors and shareholders” contains the most important materials for a private investor. Here you can find financial statements, quarterly reports, lists of affiliates, presentations for investors, an investor calendar with dates for upcoming events, results of meetings of the board of directors and shareholders, dividend policy and much more.

But the most important document in the initial business review for an investor is the issuer’s last annual report.

A public company is required to publish annual reports not only on its own website, but also on the disclosure website.

We go in the issuer’s card on the news agency’s website to the “Reporting” section and select the “Annual” line. A list of reports by years will open before us – the last report with the most relevant information will be placed on top.

For example, we need to study the annual report of Severstal for 2021. We find it in the issuer’s card on the news agency’s website.

The link to download the archive with the desired file is in the column called “File”. Download and unzip the annual report file.

The annual report is a document in which the issuer’s management tells investors about the achieved business results for the last calendar year. It is here that you can find the most valuable information about the business, management, operating and financial results for the last year, the market situation and the issuer’s position in the industry, the company’s strategy and plans for the current year.

The annual report is usually impressive in length and can span tens or even hundreds of pages. Sometimes a company publishes an annual report in several versions – a short version in the form of a text document with mandatory disclosure of information for publication on news agencies’ websites and a presentation version with beautiful pictures and graphs for investors (there are even web versions with dynamic infographics) – the second option is more convenient for learning for a beginner. You should look for it on the issuer’s website, often a link to it is placed on the main page or in the most prominent place in the “For investors and shareholders” section.

You should not be afraid of the large volume of annual reports. Over time, you will learn to easily navigate the document and find the most valuable information by the table of contents or through a search query.

First of all, you can study the sections “About the company”, “Message from the management”, “Key indicators”, “Market overview and position in the industry”, “Prospects for development and strategy”, “Risk management”.

But I would advise you to read the first 10-15 annual reports in full in order to better navigate the document and get the most complete picture of the business.

Studying the website and the annual report of the company will allow you to understand what the business is, what it owns, what it earns from and what it strives for, what results it has managed to achieve in recent years and what place it occupies in the market, who manages and owns the business, how friendly management is set up for private investors and willingly shares information about itself.

If the overall picture is clear and information about the company aroused interest after the initial review, you can proceed to the second stage – the analysis of operational and financial indicators. A fundamental investor is forced to understand the numbers in order to understand how the current market price differs from the fair one and whether the business is cheap / expensive relative to peer competitors. Otherwise, you can buy a good company at an inflated price or miss out on an unreasonably cheap business due to subjective bias.

The work of a long-term investor in the stock market is similar to the work of a private detective who is looking for valuable information about an object in the total amount of available information, trying to collect a coherent and believable picture from disparate details.

Such an activity is not suitable for everyone, since it requires concentration, perseverance, meticulousness and a love of searching, reading and analyzing. The main result of this work is a strong investment portfolio, which in the future should bring the required return. Additionally, you will be able to broaden your horizons, because studying dozens of companies with their own specifics will inevitably lead to the fact that you will understand how business works in almost all areas of the economy.

The first acquaintance with a business is an important and exciting stage in the life of an investor. Starting the study of the company, we still do not know what will be revealed to us in the end. Will this acquaintance become fleeting and unmemorable, or will it be the beginning of something more? What if this is the same issuer whose securities will form the basis of an individual portfolio for many years to come.