Ask the Fool: Informative Annual Reports
Q. Does a company’s annual report show its market capitalization? — B.W., Brandon, South Dakota
A. A company’s market capitalization, or “market cap,” can change throughout a trading day and isn’t generally mentioned in its annual report. It shows what value the market is ascribing to a company; you can find it online at sites that offer stock data, such as Finance.Yahoo.com.
The number is calculated by multiplying the current stock price by the number of shares outstanding (which does appear in the annual report), so it reflects the total value of all those shares. The current market cap may be higher or lower than the company’s intrinsic, or fair, value — a figure that analysts and investors estimate based on factors such as expected growth rates.
Annual (and quarterly) reports are still worth reading, though. Beginning investors might at least read the CEO’s annual letter to shareholders.
The financial statements included are even more informative: The balance sheet reflects the company’s financial health at one point in time, including its cash, money it owes, money owed to it and more. The income statement (sometimes called the statement of operations) shows sales, costs and profits over a period of time, while the statement of cash flows details cash inflows and outflows during the period.
Checking out a transcript of a company’s quarterly conference call with analysts (search, for example, “Coca-Cola q2 2022 call”) can also be enlightening.
Q. What are the biggest U.S. currency bills? — H.R., Westwood, New Jersey
A. The $100 bill is the largest still being issued. The $10,000 bill is the largest ever issued for public circulation, but it — along with $500, $1,000 and $5,000 bills — was last printed in 1945.
Fool’s School: Hooray for Falling Stock Prices?
Superinvestor Warren Buffett asked and answered an important question in his 1997 letter to shareholders:
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. … Only those who will be sellers of (stocks) in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
He also offered examples: If you expect to buy burgers occasionally over the next few decades, and you plan to buy a car every few years, you would prefer prices for burgers and cars to fall.
It’s the same with stocks. If you have many years ahead of you of saving and investing, you should be pleased when the overall market heads south, as it has done in recent months — because the stocks of many great companies will be on sale.
It can be hard to accept, though: If you buy into a great company at a stock price of, say, $50, you may be happy when it rises to $60 — but if you’re not planning to sell your shares for many years, a fall to $40 per share means you can buy additional shares at a better price.
Meanwhile, those who plan to be selling stocks in the near future can legitimately be upset by a market downturn. The best way to avoid this scenario is to not invest in stocks with any money you expect to need within five, if not 10, years. After all, the stock market tends to drop every few years — occasionally sharply. It often does recover within a few months, but sometimes the downturns are protracted, lasting some years.
Don’t try to time the market, guessing when it will rise or fall. No one can know that. Instead, just aim to keep adding money to your investment accounts systematically, ideally over many years. That’s how lots of millionaires have become millionaires — via diligence and patience.
My Smartest Investment: A Very Good Habit
My smartest investment is simple: I read 100 pages every day. — A.R., online
The Fool responds: That’s a powerful kind of investment. Many highly successful people attribute much of their success to reading. Warren Buffett, for example, has advised at least one class of business students to read a lot.
In 2000, he reportedly pointed at a stack of papers: “Read 500 pages like this every day,” he said. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Buffett’s business partner Charlie Munger, meanwhile, has said, “In my whole life, I have known no wise people who didn’t read all the time — none, zero,” and “If you want wisdom, you’ll get it sitting on your a–. That’s the way it comes.” He has also said, “You’d be amazed at how much Warren reads — at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
Reading 100 pages a day can make you a much savvier investor if you’re reading things like annual reports of many companies, books by and about great investors, and books about how great companies grew great. Reading other nonfiction can educate you about how the world works, while fiction can enlighten, shedding light on how others live.
— distributed by Andrews McMeel Syndication
