Investment Checklists

I’ve invested in things like $PCG, Dexcom, and a few tanker stocks.

I never hold more than 4–5 stocks at a time.

I find it too cognitively challenging to do any more.

I like businesses where my ability to complete due diligence outweighs the competitor.

I never invest alone and remain dogmatic and open minded with my squad of people I co-invest with.

I’ve done some crazy forms of diligence as well.

Bruce Basic Checklist For Investing

• Can you kill the investment?
• Is there adult supervision at the company?
• Is the company essential? Does it depend upon the kindness of strangers?
• What can the company make? Reasonable profitability for owners?
• How are owners paid? Distributions?
• Management — honest in past and present?
• Does accounting reflect reality?
• Does the balance sheet match up with the income statement?
• Catalysts — Buybacks? Misunderstood? Is enterprise having a big problem that is fixable?
• Are there irrational fears of current headwinds, i.e. has everyone been burned by the stock so afraid to buy it?
• Does the business have pricing power or unit growth?
• Can you hold the investment for a long time & does it improve portfolio performance?

Warren Buffett’s Checklist

• Is the business simple and understandable?
• Does the business have a consistent operating history?
• Does the business have favourable long-term prospects?
• Is the management rational with its capital?
• Is management candid with the shareholders?
• Does management resist the “institutional imperative”, ie groupthink?
• Is the focus on Retum On Equity? What is the rate of “owner eamings”?
• Is there a high profit margin?
• Has the company created at least one dollar of market value, for every dollar retained?
• Financial analysis:
• a. Focus on return on equity, not earnings per share.
• b. Calculate owner earnings — This is essentially free cash flow.
• c. Look for companies with high profit margins.
• Can you see how good they will be versus the competition 10 years from now?
• What is the value of the business?
• Can it be purchased at a significant discount to its value? This is the last and most important question.

David Einhorn’s Checklist

• There were three basic questions to resolve:
• First, what are the true economics of the business?
• Second, how do the economics compare to the reported eamings?
• Third, how are the interests of the decision makers aligned with the investors?

Lou Simpson’s Checklist

• Does management have a substantial stake in the stock of the company?
• Is management straightforward in dealings with the owners?
• Is management willing to divest unprofitable operations?
• Does management use excess cash to repurchase shares?

Bill Ackman’s Checklist

• Is the business simple, predictable, free-cash-flow generative, resilient and sustainable?
• Does the business have strong profit-growth opportunities and/or scarcity value?
• Does the business have a moat around it?
• Is it a high-quality businesses that can’t blow up and should grow in value over time?
• Avoid energy or other cyclical businesses.
• Avoid healthcare because of all the regulatory uncertainty.
• For shorts: Is the company violating the law, or has misleading or inaccurate accounting, or has a potential regulatory problem?

Tom Murphy Checklist

Does the company have characteristics of a great businesses?

• Scarcity value
• Clear and long runway of growth
• Limited competition
• Not capital or labor intensive
• Minimal govemment involvement
• A major plus to have a great manager

Michael Porter’s Analysis:

Five forces

• Threat of new entrants
• Threat of substitute products or services
• Bargaining power of customers (buyers)
• Bargaining power of suppliers
• Intensity of competitive rivalry

An economic franchise arises from a product or service that contains the following characteristics:

• It is needed or desired
• Thought by its customers to have no close substitute
• Not subject to price regulation