Growing Rich - Arabictrader.com

KIRK KAZANJIAN
I never blindly trust what’s written in the front of an annual report,
because I’m not even sure if it’s actually the CEO who is saying it.”
START AND END WITH THE NUMBERS
Roy Papp also believes it’s important to scrutinize a company’s
annual report from the back to the front. “I first want to examine the
balance sheet, to look at the cash flow and receivables,” he says.
“Show me a company where sales have barely risen and receivables
have gone through the roof, and I’ll show you a company that is
playing games. That’s an early warning sign. I next read the additional
notes to see if anything unusual has occurred to mess up this year’s
earnings. Then I work my way up to the chairman’s summary of
what’s happening with the company.”
Whether the chairman eats his own cooking is another thing Papp
looks for. This can be found by reading the proxy statement. “I think
options are desirable, as long as they can’t be redrawn at a lower
price,” he adds. “In terms of visiting companies, I normally will talk
to management on the phone. Unfortunately, it’s hard to get through
to the chairman or head of the research department any more. You
usually wind up talking to an investor relations person and getting
the same information as everybody else. Still, such a conversation
can teach you something and make you feel more comfortable about
your decision.”
OTHER SOURCES OF INFORMATION
As first mentioned in Rule Three, Stovall chooses his stocks using
a “bull’s-eye” approach, which calls for picking companies that stand
to benefit from the various themes and trends he picks up on. Once
he has his list of candidates in hand, he not only gathers annual reports
from each company, but also related research reports prepared
by independent brokerage firms. He then reads everything to see if
either the company or other analysts have also picked up on these
same themes. “Sometimes they do and other times they don’t,” he
admits. “If I find in my readings that I am late in noticing a certain
trend, I may drop the idea entirely, because it’s important to be early.
Other times, if I think I’m on to something that others haven’t noticed,
I look further at the balance sheet and earnings prospects.” Stovall
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