Investment Checklist for Stock Selection

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Following on from the discussion of my first investing checklist, it’s time to reveal my new investment checklist.

Rather than a checklist of yes/no answers, the new checklist focuses on sets of core to do tasks with the real checklist being only a handful of questions in the “Final Evaluation” section.

I’ve also made it visual so that it makes it quicker and easier to follow. Rather than having a checklist of 100 items thrown at you, having a flow chart will make it easier to manage and keep track of what stage of the investing process you are on.

Investment Checklist Flowchart

Edit: Link has been deleted.

Core Investment Checklist

Here is the text version.

But before that, maybe you want a printable version of the checklist? Just click on the image below to get the best investment checklist to help you organize your thoughts and make it easier for you.

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Do the Pre Work

Preliminary Background Reading

• Read previous thesis on Blogs / Investing Sites / Forums / Alerts
• Read news headlines

Valuation

Financial Statement Analysis

• Go through line by line
  • Income statement + competitive advantage analysis
  • Balance sheet + competitive advantage analysis
  • Cash Flow statement + competitive advantage analysis
  • Quality of Earnings (Inventory, tax, EPS)
• Competitor comparison
• Verify 15 value investing metrics and ratios
• Discounted Cash Flow/ Graham’s Value/ Earnings Power Value/ Multiples/ Sum of Parts

Dirty Work

• 2 annual reports
• 3 quarterly reports
  • specific attention to footnotes at the end of the report
  • managers discussion – consistency, candidness
• 2 letter to shareholders
  • compare words, numbers to annual report numbers
• Latest proxy
  • CEO compensation (% of sales)
  • Greed factor (bonuses, reimbursements, planes, boats, family donations)
  • Insider ownership
• Search CEO history, track record, personality

Emotional Check

• Write down how you are feeling
• Beware of
  • wanting to just buy and study later
  • hindsight bias
  • overconfidence
  • obligation to buy due to amount of research
  • reluctance to accept differing opinions
  • social proof bias
• If required, take a break and clear your mind. Get away from the excitement and  noise.

Final Evaluation (the only checklist you need at this point)

• What can go wrong?
• What are the risks? How likely are the risks?
• How can you lose money?
• How would you categorise this investment?
• How attractive is this idea compared to the other holdings? (There can only be ONE best idea. Not 2 or 3.)
• What is the expected holding time frame?
• What should be the portfolio sizing?
• What price will you sell?

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