Financial Statements and What Really Matters | AWM Insights #140

Does evaluating financial statements for publicly traded companies lead to better returns? This may seem like a simple question on the surface, but understanding the magnitude of the question is important. 

There are roughly 60,000 publicly traded companies worldwide according to the World Federation of Exchanges. A company, like Apple, generates a summary of financial performance in a document called a 10K that has 80 pages, 1000’s of data points, and countless footnotes to qualify the data (as different companies report on metrics in different ways.) 

That information is also mainly backward-looking, and only relevant for a short amount of time in our ever-evolving world. What you are left with are billions of numbers that don’t relate to each other. Also, there has been no proven method of using any of these figures for consistent returns.

All of this may seem stressful (and it is), but it can also be harmful if it takes attention away from the most important elements in your financial life, your structure and plan. Focusing on your plan, lifestyle, and the factors you can control will lead to far more benefits than looking at Apple’s Commercial Paper holdings.

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Episode Highlights

0:00 Intro1:01 Do we read financial reports and try to value companies based on fundamentals?2:00 Public vs. Private Market Dynamics2:46 Recent Rally was a result of the market repricing interest rate expectations4:26 Trying to be an active manager and outguessing the markets has been shown to be impossible to do consistently6:13 What an active manager believes and how it would relate to a company (i.e. Tesla)8:14 What is a relevant baseball example for being an active manager9:13 There are different elements, themes, and dynamics in Public and Private markets11:15 Going through fundamentals and the data is more productive in the private space12:47 Wrap Up