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What Should I do with a Shareholder Letter?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 12 February 2020
  • Copyright Protected:
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    Conjecture Corporation
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A shareholder letter should be read carefully, as it contains important information about a company's operations, and it should be filed along with the rest of an annual report in a safe location with other financial documentation. People who have lost copies of their shareholder letters may be able to obtain them in electronic format from the company's website, as it is common to publish the shareholder letter online for the benefit of people doing research and analysis. They can also request reprints from the company's office of investor relations.

This document is part of the annual report, a disclosure companies are obliged to send to shareholders. The annual report provides a breakdown of financial activities and performance over the course of the year, allowing people to see how well the company is doing. Information in an annual report can be revealing, as companies cannot hide major losses and mistakes such as bad acquisition decisions. Investors, analysts, brokers, and other people in the financial industry review annual reports closely.

Often located near the front of the annual report, the shareholder letter contextualizes the information presented. If there is an explanation for an unusual entry, it can be found in the shareholder letter. The author, usually a CEO or other major figure in the company, may include language intended to act as a shareholder pep talk when the company or economy is doing poorly, and can provide evidence of unusually good performance in a strong economy.

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Reading through the shareholder letter can provide people with a more complete picture of the information discussed in the annual report. Balance sheets do not provide space for explanations about entries, and things that may not make sense can become more clear upon reviewing the letter to shareholders. In addition, the letter can provide details about the company's plans for the future, shifts in its mission or goals, and so forth.

Keeping old annual reports can be useful, as people can compare performance across different years and take note of changes. Having the entire document, including the shareholder letter, available for reference may be beneficial for investors who are making decisions about their portfolios or who are looking for explanations for a company's financial distress. Sometimes, older letters provide clues, such as comments about changing focus or mission, and these may become more evident after the fact, when people are looking back on the company's decisions to see how and why mistakes were made.

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