An investment checklist

My investment checklist

This is the general checklist that I go through each time when I examine an investment opportunity. This is long-winded and generic. This won’t be exhaustive enough to cover all the possibilities nor specific enough to cover specific aspects of individual companies. Not all the points are applicable in all cases. Many are open questions of which the answers can mean opposite things in different circumstances.The purpose of having this in place is to avoid silly mistakes, to slow myself down and to minimise the influence of my own emotion, laziness and blindspots. This will be a living document that I’ll add or delete points when I have newer insights upon reflections.Utilising a checklist is probably a Mungerism.

Rebuild the history and the profile of the company

  • Filings and public information
    • 5-10 years of public announcements (financial reports, proxy statements, annual reports, tax filings)
    • Differential analysis: what mgmt said in one year vs what happened in the next year; things said in different statements
    • Recent new releases
    • Industrial or government data and statistics
  • Scuttlebutt
    • Competitors, suppliers, customers and products
    • Media coverage of company and mgmt
    • Court cases?
    • Background check: mgmt, accountant, lawyer, cross-holding parties

Check the numbers

  •  Debt Health
    • Interest cover
    • Debt-to-asset and debt-to-equity ratios
    • Maturities and covenants of loans. Fixed interest or floating?
    • Off-balance sheet liabilities? (e.g. operation leasing, subsidiaries)
    • Capital structure 
    • How open are the debt markets?
  • Cash Liquidity Health
    • Quick Ratio
  • Profitability
    • Predictable long-term earning? What is its average earning and FCF?
    • ROE
    • Segment mix and margins
    • DuPont analysis: Cash conversion rate x Net Margin x Asset Turns x Gearing = Cash ROE
    • DCF if it’s a runoff business
  • Assets
    • Book value and NCAV
    • Hidden values (e.g. properties, LIFO inventory, depreciation & amortization)
  • Operational efficiency
    • Cash Conversion Cycle = Receivables Turns + Inventory Turns – Payable Turns
    • Capex vs Depreciation
  • Capital Allocation
    • Cash used in financing over the years
  • Misc
    • Executive compensation & options
    • Insider ownership

Business Quality

  • Business understandable?  Corporate structure understandable? Capital/debt structure understandable?
  • Are the customers happy with the products enough to leave some cash crumbs on the table? 
  • Competitive advantages and competition landscape
    • Can I comfortably say how the industry/business will look like in 10 years?
    • Moats / Porter’s 5 Forces / Barrier to exit
    • Concentrated clients or suppliers?
    • Pricing power – can the company easily raise price by 10%?
  • What is the megatrend? What’s the macro business environment? 
  • Counterparty risks – e.g. Will customers default? Are your clients struggling?
  • Management integrity? Irrational motives?
  • Institutional imperative? (some elaboration)
  • Where will growth come from? 
  • How does capital allocation looks like? 
    • maintenance capex
    • dividends, acquisition, share buyback, capex expansion
    • Chance of capital raising?
  • Only one hurdle to jump? Is the difficulty the company facing temporary?
    • industry-level recession, market over-correct, one-off management mistake, war, one-off restructuring cost, out of favour 
  • Any catalysts?

Important Questions

  • Do I have enough downside protection and margin of safety?
  • Does the company have enough staying power while we are waiting for the value to realise?
  • What can go wrong? 
  • Why is the other side selling? Why is it cheap? 
    • Remember the market is usually right. Where is my edge here?
  • Not the right pitch? Wait for next pitch?
    • Is it a mediocre idea?
    • Would I buy the entire company? 
    • Do I compromise my margin of safety or the quality/depth of my research because of lack of patience?
    • Is it a too-hard basket case?
    • Should I keep cash instead? Time is on my side.
    • Should I wait for more evidence or better price?
  • Can I say my primary reason to invest is because the business itself is undervalued?
  • Have I studied the industry?  
  • Recheck every assumption and every figure. Is there any superficial reasoning?
  • Does any measurement or figure look too good to be true? 
    • How does it compare to industry average?
    • Fraud??
  • Consider other securities for different risk/reward balance: preferred’s, bonds, options
  • Is the general market overvalued? (Shilling PE10, Tobin Q-ratio, S&P500 Market Cap vs GNP)

Portfolio Construction

  • Correlation with my existing portfolio
  • Position sizing as per Kelly’s Criterion. (some elaboration)
  • Tax consideration – consider how the value will be realised.

Self Checks

  • Do I have tunnel vision? Do I look for evidence only for confirmation instead of invalidation? Can I tolerate non-coherent evidence?
  • Am I rushing, losing patience, stressed, over excited? Or is my mood swung by the market direction?
  • Am I anchoring?
  • Overconfidence? There is no way to eliminate all the risks. There are always unknown unknowns. Don’t overexpose in one position
  • How would I feel if the stock loses 50%? 


  • Re-examine the original thesis and fundamentals.
  • Price/Value should be the primary reason. All other reasons (e.g. pruning, taxation) are secondary.
  • 3 year rule – If visibility is poor, wait for up to 3 years
  • Should I take profit in cyclicals?

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