Overview – Why Should Investors Care About Reading?
High-quality information is the lifeblood of investing, and in today’s digital landscape, there are myriad ways for investors to find the information they want, when they want it.
Regardless of how investors decide to get their information, the one medium they will constantly find themselves repeatedly turning to is written text. Whether it’s news articles, press releases, or company reports, much of the information investors will need is tucked away behind blocks of text.
Most investors know how to read, and have been doing so for most of their lives, so it’s very easy to take this seemingly boring skill for granted. But, most investors underestimate the importance of effective reading as part of their overall investing toolkit.
Despite being easily overlooked as “boring”, having strong reading skills confers upon investors a multitude of benefits that will serve them for the entirety of their careers.
Reading in Investing Is More Than Just Gathering Information
Whether it’s a book, brochure, newspaper, or any other form of written media, most people read these things with one purpose in mind – to find the information they need. Extracting this information, such as finding local news or learning a new recipe, is typically low to moderate effort, doesn’t take long, and is usually straightforward.
With that in mind, reading for investment purposes should be no different, right? For the most part, yes, but there are additional considerations that must be kept in mind.
Not only is information extraction one of the main objectives, but reading for investment purposes also entails uncovering potential trends in the data, looking for signs of possible weakness (both quantitative and qualitative), and trying to discern areas of strength that others may overlook.
Some of these things are presented in a transparent, easy-to-understand manner, but in other instances, certain key details are hidden between the lines, either unintentionally or with nefarious intentions in mind. Bad news can be downplayed and ordinary developments can be greatly exaggerated if worded carefully – investors who lack the skill needed to decipher these written veils would be none the wiser.
Therefore, reading for investment purposes is a mix of information gathering, problem-solving, keeping an eye out for possible red flags (such as financial dishonesty), and making educated assumptions/predictions, to name a few things.
Most people know how to read, but not everyone knows how to read beyond what’s simply presented to them and dig further. When dealing with any written media, not everything that investors want to know will simply be handed to them.
Investent-related documents may seem unassuming at first, but in the right hands can prove to be extremely valuable. By having strong reading skills, investors can extract and understand all sorts of things from various kinds of written media, allowing them to accomplish several analytical objectives at once.
Before Reading Anything Investment Related, Know What You Want to Find Out
Although written documents provide investors with an abundance of information and insights, these things can subconsciously be skipped over by investors if no conscious effort is made to look for them. How is that possible?
Take, for example, watching a movie. When most people watch a movie for the first time, they do so primarily for the sake of enjoyment. However, when people re-watch movies with a specific goal in mind (e.g., discovering underlying themes, finding hidden plot elements, studying character development), they quickly realize how many things they unknowingly overlooked in their first viewing.
This same phenomenon also happens when it comes to reading investment documents.
Of course, there’s no harm in re-reading investment documents, and sometimes it may be necessary, but to be as efficient with their time and energy as possible investors should have a clear idea of what exactly they’re looking for before reading. It’s much faster and easier to find the information, trends, and hidden details you need if you’re consciously trying to find it.
This underlying goal doesn’t even need to be anything overly complicated. For example, when reading a news article about a company’s ongoing legal problems, your goal can simply be “understanding what the legal problems are”, increasing your likelihood of picking up key details and other related bits of information relating to the company’s legal woes which you otherwise may have skipped or ignored.
Regardless of how simple or complex your underlying objective(s) is, its purpose will always be the same: to help you know what exactly it is you’re trying to search for tucked away behind the walls of text you’re about to work through.
Different Investment Documents Will Require Different Approaches
Whenever you speak to different people, do you talk to all of them with the same tone, mannerisms, and level of formality? Probably not. It’s most likely that based on who you’re currently interacting with, you take a different approach to get the most out of your conversation.
Casually chatting with your close friend to discuss where to meet for brunch over the weekend, whereas having a sit-down conversation with your boss to discuss workplace grievances, will require you to speak, act, and behave in vastly different ways to achieve your underlying objectives.
This may sound like obvious knowledge that everyone is privy to, but this can easily be forgotten in different contexts, such as reading for investment purposes.
Different written media will require investors to adjust their reading speed, attention to detail, and the intensity of their concentration: these are just some of the things that their reading approach will comprise.
Investors will encounter all sorts of written media throughout their careers, and knowing which approach to take when reading specific documents will help investors better focus their efforts and make the most of their time. Pair this with the aforementioned idea of knowing what you want to find out before reading, and investors will have a very powerful combination at their disposal.
An annual report is arguably one of the most widely-read investment documents, and understandably so. It’s comprised of various sections such as the introductory business highlights, management’s discussion & analysis (MD&A), ongoing legal proceedings, the financial statements, and the seemingly endless notes near the back of the report containing all kinds of minutiae.
Because of this variety, different sections will require investors to adjust how they read to find out what they want to know in a time-effective manner.
The introductory highlights and CEO/Chairman messages will most likely contain an abundance of good news and general remarks, meaning there’s no need to spend too much time trying to find hidden details and can therefore be read relatively quickly. On the contrary, the MD&A section can provide a wealth of insight regarding a business’ current health, potential issues, and future direction, so investors may want to slow down their reading here to try and pay close attention to what’s being shared.
No matter what sort of written media investors choose to read, knowing the proper approach to take will make all the difference.
How Can Investors Improve Their Reading Skills?
Up to this point we have talked about how reading, if done effectively, can reveal all sorts of information and insights that investors will need to make effective decisions. By knowing what exactly they’re looking for, as well as knowing how to approach specific texts, a wealth of information awaits investors behind seemingly ordinary blocks of words.
However, this all relies on an investor having superb reading skills, which some investors may already have, but others may not.
How, then, can this skill be developed? Unfortunately, there’s no secret to this: the only way to improve is through deliberate, high-quality practice. In this case, that means reading through a diverse variety of material.
Luckily, the amount of practice material to work with is seemingly endless. Investment-related documents (reports, press releases, financial statements), news articles, blog posts, comics, books – there are all sorts of written media that investors can go through to refine their skills.
Of course, gaining superb reading skills doesn’t happen in a single day, but as long as this practice is done consistently, then this skill will eventually be developed.
Wrapping Up
Investors get the information they need from a variety of sources, but the one source they’ll repeatedly find themselves turning to is written media. Despite this, it’s very easy to underestimate the importance of having strong reading skills.
Although most people think of reading as nothing more than the act of getting information, reading for investment purposes also includes problem-solving, spotting trends, trying to make educated assumptions/predictions, and attempting to unearth potential red flags.
By knowing how to read well, investors can extract the most information and insights possible from the things they read, whether it’s a news article or an annual report.
However, just like any other skill, this is something that must be developed and constantly refined, especially as investors continue to advance their careers.
