A Nine Point Checklist to Improve Investment Decisions

Checklists are used by some of the worlds best investors. For example, see Monish Pabrai’s reasons for using checklists. It’s a great presentation here: http://www.slideshare.net/MShareS/how-mohnish-pabrai-uses-checklists-1984991

The following is a recent nine point investing checklist I compiled after looking at some of my biggest winners and losers. I am going to try to continually add to this list and use it in my investing process. Let me know in the comments section or on Twitter what you think of this checklist, or any other points you use in your checklist investing process.

Investing Checklist—Winners/Losers

  1. Is this a simple business that I can understand? Can I explain it to a third grader?
  2. What do the smartest people in the room (management, large shareholders) think about the stock? At what price have they liked it/ not liked it? Have they publicly said their stock is cheap? Do you understand the incentives of everyone involved? Management, majority stockholders, etc?
  3. Do I understand the history of the business? Do I love the company independent of stock price? Is this a business I will be a passionate partner of, or merely a stock that looks cheap?
  4. Does the company have a competitive advantage? How is this reflected in the financials?
  5. How does the stock trade today and are you confident you understand what others think about it in the market?
  6. Where does the stock deserve to trade? If there is a variant view from the market, what is the exact source of that view?
  7. How much time have you put into researching this company, its history, and its competitors? Is this a business you want to bet your year on? Your career? Or is this a smaller, more speculative position?
  8. ~50% of a stock’s move is industry driven– what are the key trends in the industry and which firms do they favor? Is this a situation or industry with uncontrollable risks? How do you lose in this investment?
  9. What is the margin of safety? Explain it to someone else who tries to poke holes in it. Is there a margin of safety in both the business and the price paid?

2 thoughts on “A Nine Point Checklist to Improve Investment Decisions

    • Thanks– have any checklist items you use in your investment process? I’m about to read “The Investment Checklist: The Art of In-Depth Research” by Michael Shearn as it has come highly recommended from a fellow investor. Hoping to find some good mental models from that book as well and will update post when I’ve gotten through it

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