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The Investment Checklist: The Art of In-Depth Research
A practical guide to making more informed investment decisions Investors often buy or sell stocks too quickly. When you base your purchase decisions on isolated facts and don't take the time to thoroughly understand the businesses you are buying, stock-price swings and third-party opinion can lead to costly investment mistakes. Your decision making at this point becomes dangerous because it is dominated by emotions. The Investment Checklist has been designed to help you develop an in-depth research process, from generating and researching investment ideas to assessing the quality of a business and its management team.
The purpose of The Investment Checklist is to help you implement a principled investing strategy through a series of checklists. In it, a thorough and comprehensive research process is made simpler through the use of straightforward checklists that will allow you to identify quality investment opportunities. Each chapter contains detailed demonstrations of how and where to find the information necessary to answer fundamental questions about investment opportunities. Real-world examples of how investment managers and CEOs apply these universal principles are also included and help bring the concepts to life. These checklists will help you consider a fuller range of possibilities in your investment strategy, enhance your ability to value your investments by giving you a holistic view of the business and each of its moving parts, identify the risks you are taking, and much more.
Offers valuable insights into one of the most important aspects of successful investing, in-depth research Written in an accessible style that allows aspiring investors to easily understand and apply the concepts covered Discusses how to think through your investment decisions more carefully With The Investment Checklist, you'll quickly be able to ascertain how well you understand your investments by the questions you are able to answer, or not answer, without making the costly mistakes that usually hinder other investors.
The purpose of The Investment Checklist is to help you implement a principled investing strategy through a series of checklists. In it, a thorough and comprehensive research process is made simpler through the use of straightforward checklists that will allow you to identify quality investment opportunities. Each chapter contains detailed demonstrations of how and where to find the information necessary to answer fundamental questions about investment opportunities. Real-world examples of how investment managers and CEOs apply these universal principles are also included and help bring the concepts to life. These checklists will help you consider a fuller range of possibilities in your investment strategy, enhance your ability to value your investments by giving you a holistic view of the business and each of its moving parts, identify the risks you are taking, and much more.
Offers valuable insights into one of the most important aspects of successful investing, in-depth research Written in an accessible style that allows aspiring investors to easily understand and apply the concepts covered Discusses how to think through your investment decisions more carefully With The Investment Checklist, you'll quickly be able to ascertain how well you understand your investments by the questions you are able to answer, or not answer, without making the costly mistakes that usually hinder other investors.
503 pages, Kindle Edition
First published September 20, 2011
196 people are currently reading
2642 people want to read
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Displaying 1 - 30 of 52 reviews
October 21, 2018
This review is biased by two facts: I know Shearn, and this is the first book I've read about investing, which is an interesting topic to me. The conversations I had with Shearn in person a couple of weeks ago and hearing his approach to investing, opened a different perspective on what investing can be like—this is what prompted me to read the book.
The checklist approach that the book follows is great. It goes through the important factors that go into making an investment decision, and investing for the long-term. This is not investing in the short-term for maximum profit, but investing in businesses that will deliver over the long-term. It'd be an interesting world where every investor was thinking as long-term as Shearn, highlighting such terms as conscious capitalism promoted by John Mackey.
What fascinates me about the book, is the amount of emphasis it puts on management of the company. A stat that really jumped out at me, is that of the Fortune 500 companies 28 of the CEOs have a 10+ year tenure. Of those, 25 of the companies outperform the S&P 500. The macro-lessons on what good management looks like to an investor, is an interesting lesson. Applying this inward to my own employer, it's interesting to see what everything looks like from an investors point of view. At the end of the day, my tenure is also a sort of investment to be evaluated with the same checklist.
Something that's clearly been paid attention to is the amount of examples. Every idea and point has many examples of this in practise, whether it's good or bad. It's clear it's coming from someone who's done their homework for the book.
What fascinates me about investing, even if it's not something I'm pursuing (index funds do it for me) is the amount of care and thought that goes into their decision-making. This book is a fantastic example of the rigorous process: Supplier relationships, reading years of 10Ks and financial statements, understanding the management team and their motivations, understanding employee engagement, ..
The checklist approach that the book follows is great. It goes through the important factors that go into making an investment decision, and investing for the long-term. This is not investing in the short-term for maximum profit, but investing in businesses that will deliver over the long-term. It'd be an interesting world where every investor was thinking as long-term as Shearn, highlighting such terms as conscious capitalism promoted by John Mackey.
What fascinates me about the book, is the amount of emphasis it puts on management of the company. A stat that really jumped out at me, is that of the Fortune 500 companies 28 of the CEOs have a 10+ year tenure. Of those, 25 of the companies outperform the S&P 500. The macro-lessons on what good management looks like to an investor, is an interesting lesson. Applying this inward to my own employer, it's interesting to see what everything looks like from an investors point of view. At the end of the day, my tenure is also a sort of investment to be evaluated with the same checklist.
Something that's clearly been paid attention to is the amount of examples. Every idea and point has many examples of this in practise, whether it's good or bad. It's clear it's coming from someone who's done their homework for the book.
What fascinates me about investing, even if it's not something I'm pursuing (index funds do it for me) is the amount of care and thought that goes into their decision-making. This book is a fantastic example of the rigorous process: Supplier relationships, reading years of 10Ks and financial statements, understanding the management team and their motivations, understanding employee engagement, ..
June 17, 2018
Great overview of qualitative factors to consider - investing is after all more an art than science. More suited to Buffett-style investors willing to do in-depth research over months (and years) to find the 20 punches on their punch-card than someone looking for a more quantitative (e.g. Graham deep value) or shorter term (e.g. mispricings / special situations) approach. As with any checklist, this should just yield a list of things to think about / investigate further rather than be followed rigidly. My chief nitpick is that many of the examples exhibit hindsight bias and while in line with common sense, lack empirical rigor / support with real world evidence that businesses matching the given criterion do in fact outperform those that don't (Having a statistical background, I prefer Carlisle's "Deep Value" book which yields numerous counter-intuitive insights, backed by empirical data). However, still a great reference for those with a concentrated, long term investing style.
April 13, 2021
This is a fabulous book for investment purposes. It has laid out a checklist in a very systematic and detailed way. While reading one must take notes as the information given here can be very handy and resourceful This book to be read over and over again to polish the checklist before long term investment in stock .
- [ ] Filtering criteria
- A recurrent revenue stream
- A business with high organic growth prospects
- Management that has long tenure at the business
- A competitive moat
- High free cash flow.
- High returns on invested capital
- Limited competition.
- Low capex requirement.
- A diversified capital base
- A strong balance sheet.
- How does the business generate earning?
- How does business evolved over a time- you need to determine whether revenue growth translating into profit growth over long term in foreign market.
- [ ] Understanding the underlying economics of business and know those how can change
- How business operates
1. Its each business segment
2. Distribution channel
3. Marketing strategies
4. Manufacturing activities
5. regulatory requirements.
6. Management strategy and derisking business.
7. Industry size and trends
8. Insights into a competitive environment.
- [ ] Understanding the business - from customer Perspective
- you need to figure out who the core customer of business is.
- Is the customer base concentrated or diversifying?
- Is it easy or difficult to convince customer to buy products or services?
- Businesses that rely on high press sales tactics to sell their products or services do not have sustainable business models
- customer retention rate?- Longer the better
- What pain does business alleviate? What customer needs does business filling?
- Ask what the customer would do if the business disappear tomorrow?
- Evaluate business strength and weakness from competition.
- Figure out how individual supply chain work?
- Does the business have a sustainable competitive advantage and what its source?
- Always Ask
1. How easily can someone else copy or replace this advantage?
2. How quickly might they do it?
3. Moats add the most value to business that have lots of re-investment opportunity.
4. Relation between growth,moats and intrinsic value is central to understanding when it is truly worth paying up for a business.
- [ ] common sources of competitive advantage
- Network economics- more is being popular, more is being used.eg social media, ecommerce site.
- Brand loyality
- patents- though it can legally protect product for 15-20 yrs but the more innovation,more technological changes in an industry, the less value patent will have as source of protection.
- regulatory licenses- It can limit competition. Eg in pharma industry
- Switching cost- There may be an additional cost associated with changing products . Eg in pharma industry
- cost advantage- it includes factors such as economy of scale and advantage locations.
- economy of scale- it takes advantage lower / unit cost. low price of products/services compared to competitors.
- Structural-
1. Result of regulation, prime location, better distribution network
2. The customer has a limited choice in the products or services or they can use for an extended period of time.
- It is difficult to find business with a competitive landscape because
1. consumers are less loyal to products or brand names
2. increased global competition has decreased entry barrier
3. technology advances has decreased the lifecycle of competitive advantage.
- R&D- Look for business that are increasing allocating to R&D
- marketing- look for market that are increasing awareness of their products with unique business value.
- customer retention
1. It has ability to increase price without losing customer
2. profitable business models
3. quality of product is more important than price.
- right industry
1. calculate the range of ROIC(return on invested capital) of various competition of the industry.
2. Always try to locate the best business in industry by finding the business with highest operating margins, highest ROCE(return on capital expenditure) and lowest cash conversion cycle.
3. understanding how industry evolved will help you operate the business in the context of competition, its operating environment and various other forces that shape it.
- competition
1. Does the business have limited competition?- more competition, more customer choice and less profitability. competing by copying has risk.
2. Does the industry change often?
3. Risk?
4. fierce competition?
5. why did competitors fail? who sets the standard?
6.
- [ ] Due dilligence
- Ask
1. what drives the industry?
2. How do people compete with the industry?
3. large macro pictures?
4. industry trends?
5. available free cash flow of business and available cash conversion cycle of the industry.
6. Industry exposure to cyclical markets?
7. industry ability to pass on price increase?
8. the volatility of demand from customer?
- [ ] Measuring the operating and financial health of business/
- look at risk, inflation, balance sheet issue, debt and health
- measure the business quality , how well the business generates ROIC(return on invested capital) and how much possibility for reinvestment.
- Always ask what are fundamentals of the business?- fundamental drive value of business.
- Identify the metrics of a particular industry- 1st identify what you are trying to measure?
- [ ] Risk involved
- Business
1. overcapacity
2. commoditisation
3. de regulation
4. shifts in technology
5. product obsolescence
6. patent expiry
7. brand erosion
8. not too many drivers
9. R&D fail
10. Too concentrated on particular geography
11. Mergers and Acquisition failure
12. Product development failure
13. weak product pipeline.
- Frequency of risk and severity
- To learn for potential financial application of risk, look for past evidence.
- how inflation is affecting the business?
1. wage inflation
2. if business has high debt - then high interest expenses.
3. is business be able to maintain its cash flow in real terms?- If business unable to increase the prices to offset the impact of inflation, then it will to fail to maintain its cash flow in real term.
- [ ] Return on invested capital
- High ROIC means company using its asset efficiently, high profit margin
- It is calculated by taking income and dividing by investment used to generate the income.
- High-Quality business- ROIC> 10%
- Higher ROIC means more business able to earn.
- Higher the ROIC, better wealth-generating capacity for shareholders.
- You want to own a business that over an extended period of time can re-invest excess earning at higher ROIC.
- Higher ROIC doesn't generally mean better business- what counts is the ability of a business to re-invest its excess earning at higher ROIC, which creates future value.
- ROIC is less useful in knowledge-based business like wealth management or information services or platform services
- If a business can generate more sales for each dollar of property, plants, etc then it will be able to generate a higher ROIC.
- [ ] Earning- cash flow
- Business that earn their revenue from recurring sources are easier to value when compared to those that generate revenue from one off transactions.
- operating leverage- The benefits of high operating leverage can be immense. Companies with high operating leverage can make more money from each additional sale if they don't have to increase costs to produce more sales. The minute business picks up, fixed assets such as property, plant and equipment (PP&E), as well as existing workers, can do a whole lot more without adding additional expenses. Profit margins expand and earnings soar faster.
- [ ] Management
- Assesing the quality of management- Get insight into character of management and its ability to execute. Gauge management in terms of honesty, passion, transparency and competence
- Look for CEO who has low salary and high stock ownership.
- Most successful businesses are built on hundreds of small decisions, instead of 1 well-formulated strategic plan.
- First they eliminate the risk . Then grow the business.
- They dont concentrate on meeting guidance but on earning of a business.
- YOu should look for managers who promise only what they can realistically deliver & dont bow to the analyst demand for high predictable earning.
- Management should be clear about all the risk and uncertainities involved and should outline how a business is progressing towards meeting its long term objective.
- Management must value his employee, good compensation, retention rate be good and adequate training.
- management must ensure good culture prevail in business.
- There are 5 actions management can take with excess free cash flow
1. Reinvest capital back in business.
2. hold cash on balance sheet
3. pay dividends
4. buy back stocks
5. make acquisitions
Find CEO who are both good at operating the business and at allocating capital.
- By making Buybacks when the stock is undervalued , management can materially add value to the business.
- Passion is important for long term success in business. Passionate leaders make little time for other activities or hobbies & have few outward signs of wealth. They are normally focused on the business at hand.
- The best management team are clear and consistent in their communication with customers, employees, suppliers and shareholders. They communicate things as they are and dont attempt to manipulate the information.
- CEO letter to shareholders should cover
1. What is important at their business?
2. what is driving their decisions?
3. the issues they have encountered
4. The metrics that are important to monitor the health of business
- Once you feel you have a good understanding of business , read transcript from the most recent as well as historical concalls. One can attain clear insights into how management thinks and act by reading these concall transcript.
- Leader has to demonstrate both transparency and humility & ability to instil confidence in people.
- Always ask -
1. Is the management easy to listen to?
2. Do you learn from manager?
3. Does the manager use double speak?
- [ ] Evaluating growth opportunities
- Business that are growing profitably create a lot of values.
- When you are purchasing growing companies , you are paying for future growth as well as current cash flow and profitability.
- You must place growth in context of existing revenue of a business i.e. how much revenue does growth consist of?
- Always look for growth of core business & be thoughtful of growth by launching new initiatives and making acquisitions.
- To evaluate whether historical growth has been profitable, compare gross and operating income margins to unit growth over 3-5 yrs. As no of units sold increases, do gross and operating profit margins increase or remain the same.
- What makes business attractive is not the rate it can grow in any single year but the no of years it can grow at any rate.
- You need to determine how long growth can be sustained-to start , you must ask if business model can be replicated broadly
- To forecast growth, you need to figure if there is trend that is fueling demand or if the business invests in innovation to develop new production services.
- Be wary of long term growth and short term cyclical changes.
- Calculate % of sales spent on R&D expenses
- Always calculate % of sales coming from new innovation
- When business is targeting a new customer base- it means business is starting to slow.
- Another way to recognise if business is slowing is- when there is change in core business or dividend payout ratio is very high.
- A high rate of growth doesnt guarantee profitability , if management follows undisciplined growth strategy.
- A business that use their own cash to grow has more sustainable growth compared to those that finance growth by issuing debt or equity.
- The lower the no of days in cash conversion cycle, the faster a business can re-deploy its internal free cash flow into growth b/c less capital is tied up in inventory or capital equipment.
-
- [ ] Filtering criteria
- A recurrent revenue stream
- A business with high organic growth prospects
- Management that has long tenure at the business
- A competitive moat
- High free cash flow.
- High returns on invested capital
- Limited competition.
- Low capex requirement.
- A diversified capital base
- A strong balance sheet.
- How does the business generate earning?
- How does business evolved over a time- you need to determine whether revenue growth translating into profit growth over long term in foreign market.
- [ ] Understanding the underlying economics of business and know those how can change
- How business operates
1. Its each business segment
2. Distribution channel
3. Marketing strategies
4. Manufacturing activities
5. regulatory requirements.
6. Management strategy and derisking business.
7. Industry size and trends
8. Insights into a competitive environment.
- [ ] Understanding the business - from customer Perspective
- you need to figure out who the core customer of business is.
- Is the customer base concentrated or diversifying?
- Is it easy or difficult to convince customer to buy products or services?
- Businesses that rely on high press sales tactics to sell their products or services do not have sustainable business models
- customer retention rate?- Longer the better
- What pain does business alleviate? What customer needs does business filling?
- Ask what the customer would do if the business disappear tomorrow?
- Evaluate business strength and weakness from competition.
- Figure out how individual supply chain work?
- Does the business have a sustainable competitive advantage and what its source?
- Always Ask
1. How easily can someone else copy or replace this advantage?
2. How quickly might they do it?
3. Moats add the most value to business that have lots of re-investment opportunity.
4. Relation between growth,moats and intrinsic value is central to understanding when it is truly worth paying up for a business.
- [ ] common sources of competitive advantage
- Network economics- more is being popular, more is being used.eg social media, ecommerce site.
- Brand loyality
- patents- though it can legally protect product for 15-20 yrs but the more innovation,more technological changes in an industry, the less value patent will have as source of protection.
- regulatory licenses- It can limit competition. Eg in pharma industry
- Switching cost- There may be an additional cost associated with changing products . Eg in pharma industry
- cost advantage- it includes factors such as economy of scale and advantage locations.
- economy of scale- it takes advantage lower / unit cost. low price of products/services compared to competitors.
- Structural-
1. Result of regulation, prime location, better distribution network
2. The customer has a limited choice in the products or services or they can use for an extended period of time.
- It is difficult to find business with a competitive landscape because
1. consumers are less loyal to products or brand names
2. increased global competition has decreased entry barrier
3. technology advances has decreased the lifecycle of competitive advantage.
- R&D- Look for business that are increasing allocating to R&D
- marketing- look for market that are increasing awareness of their products with unique business value.
- customer retention
1. It has ability to increase price without losing customer
2. profitable business models
3. quality of product is more important than price.
- right industry
1. calculate the range of ROIC(return on invested capital) of various competition of the industry.
2. Always try to locate the best business in industry by finding the business with highest operating margins, highest ROCE(return on capital expenditure) and lowest cash conversion cycle.
3. understanding how industry evolved will help you operate the business in the context of competition, its operating environment and various other forces that shape it.
- competition
1. Does the business have limited competition?- more competition, more customer choice and less profitability. competing by copying has risk.
2. Does the industry change often?
3. Risk?
4. fierce competition?
5. why did competitors fail? who sets the standard?
6.
- [ ] Due dilligence
- Ask
1. what drives the industry?
2. How do people compete with the industry?
3. large macro pictures?
4. industry trends?
5. available free cash flow of business and available cash conversion cycle of the industry.
6. Industry exposure to cyclical markets?
7. industry ability to pass on price increase?
8. the volatility of demand from customer?
- [ ] Measuring the operating and financial health of business/
- look at risk, inflation, balance sheet issue, debt and health
- measure the business quality , how well the business generates ROIC(return on invested capital) and how much possibility for reinvestment.
- Always ask what are fundamentals of the business?- fundamental drive value of business.
- Identify the metrics of a particular industry- 1st identify what you are trying to measure?
- [ ] Risk involved
- Business
1. overcapacity
2. commoditisation
3. de regulation
4. shifts in technology
5. product obsolescence
6. patent expiry
7. brand erosion
8. not too many drivers
9. R&D fail
10. Too concentrated on particular geography
11. Mergers and Acquisition failure
12. Product development failure
13. weak product pipeline.
- Frequency of risk and severity
- To learn for potential financial application of risk, look for past evidence.
- how inflation is affecting the business?
1. wage inflation
2. if business has high debt - then high interest expenses.
3. is business be able to maintain its cash flow in real terms?- If business unable to increase the prices to offset the impact of inflation, then it will to fail to maintain its cash flow in real term.
- [ ] Return on invested capital
- High ROIC means company using its asset efficiently, high profit margin
- It is calculated by taking income and dividing by investment used to generate the income.
- High-Quality business- ROIC> 10%
- Higher ROIC means more business able to earn.
- Higher the ROIC, better wealth-generating capacity for shareholders.
- You want to own a business that over an extended period of time can re-invest excess earning at higher ROIC.
- Higher ROIC doesn't generally mean better business- what counts is the ability of a business to re-invest its excess earning at higher ROIC, which creates future value.
- ROIC is less useful in knowledge-based business like wealth management or information services or platform services
- If a business can generate more sales for each dollar of property, plants, etc then it will be able to generate a higher ROIC.
- [ ] Earning- cash flow
- Business that earn their revenue from recurring sources are easier to value when compared to those that generate revenue from one off transactions.
- operating leverage- The benefits of high operating leverage can be immense. Companies with high operating leverage can make more money from each additional sale if they don't have to increase costs to produce more sales. The minute business picks up, fixed assets such as property, plant and equipment (PP&E), as well as existing workers, can do a whole lot more without adding additional expenses. Profit margins expand and earnings soar faster.
- [ ] Management
- Assesing the quality of management- Get insight into character of management and its ability to execute. Gauge management in terms of honesty, passion, transparency and competence
- Look for CEO who has low salary and high stock ownership.
- Most successful businesses are built on hundreds of small decisions, instead of 1 well-formulated strategic plan.
- First they eliminate the risk . Then grow the business.
- They dont concentrate on meeting guidance but on earning of a business.
- YOu should look for managers who promise only what they can realistically deliver & dont bow to the analyst demand for high predictable earning.
- Management should be clear about all the risk and uncertainities involved and should outline how a business is progressing towards meeting its long term objective.
- Management must value his employee, good compensation, retention rate be good and adequate training.
- management must ensure good culture prevail in business.
- There are 5 actions management can take with excess free cash flow
1. Reinvest capital back in business.
2. hold cash on balance sheet
3. pay dividends
4. buy back stocks
5. make acquisitions
Find CEO who are both good at operating the business and at allocating capital.
- By making Buybacks when the stock is undervalued , management can materially add value to the business.
- Passion is important for long term success in business. Passionate leaders make little time for other activities or hobbies & have few outward signs of wealth. They are normally focused on the business at hand.
- The best management team are clear and consistent in their communication with customers, employees, suppliers and shareholders. They communicate things as they are and dont attempt to manipulate the information.
- CEO letter to shareholders should cover
1. What is important at their business?
2. what is driving their decisions?
3. the issues they have encountered
4. The metrics that are important to monitor the health of business
- Once you feel you have a good understanding of business , read transcript from the most recent as well as historical concalls. One can attain clear insights into how management thinks and act by reading these concall transcript.
- Leader has to demonstrate both transparency and humility & ability to instil confidence in people.
- Always ask -
1. Is the management easy to listen to?
2. Do you learn from manager?
3. Does the manager use double speak?
- [ ] Evaluating growth opportunities
- Business that are growing profitably create a lot of values.
- When you are purchasing growing companies , you are paying for future growth as well as current cash flow and profitability.
- You must place growth in context of existing revenue of a business i.e. how much revenue does growth consist of?
- Always look for growth of core business & be thoughtful of growth by launching new initiatives and making acquisitions.
- To evaluate whether historical growth has been profitable, compare gross and operating income margins to unit growth over 3-5 yrs. As no of units sold increases, do gross and operating profit margins increase or remain the same.
- What makes business attractive is not the rate it can grow in any single year but the no of years it can grow at any rate.
- You need to determine how long growth can be sustained-to start , you must ask if business model can be replicated broadly
- To forecast growth, you need to figure if there is trend that is fueling demand or if the business invests in innovation to develop new production services.
- Be wary of long term growth and short term cyclical changes.
- Calculate % of sales spent on R&D expenses
- Always calculate % of sales coming from new innovation
- When business is targeting a new customer base- it means business is starting to slow.
- Another way to recognise if business is slowing is- when there is change in core business or dividend payout ratio is very high.
- A high rate of growth doesnt guarantee profitability , if management follows undisciplined growth strategy.
- A business that use their own cash to grow has more sustainable growth compared to those that finance growth by issuing debt or equity.
- The lower the no of days in cash conversion cycle, the faster a business can re-deploy its internal free cash flow into growth b/c less capital is tied up in inventory or capital equipment.
-
June 30, 2017
THE MOST PRACTICAL BOOK ON INVESTING.
I'm just a 20 year old that read a dozen books on investing, and most of those are about the mentality and attitude rather than practical advice. They're very very useful (Intelligent Investor, Berkshire's letters to investors etc) but will not provide you with enough knowledge to start investing with confidence.
This book is great, rich in examples, and the author is clearly an expert. This is a must read.
I'm just a 20 year old that read a dozen books on investing, and most of those are about the mentality and attitude rather than practical advice. They're very very useful (Intelligent Investor, Berkshire's letters to investors etc) but will not provide you with enough knowledge to start investing with confidence.
This book is great, rich in examples, and the author is clearly an expert. This is a must read.
Read
August 12, 2021Provides a lot of good questions to ask when analyzing a business. Particularly liked a few of the questions devoted to understanding the relationship between the business and its customer, and will likely add them to my own checklist.
I would agree with other reviews in that three chapters was possibly too many to devote to analyzing management.
I would agree with other reviews in that three chapters was possibly too many to devote to analyzing management.
February 16, 2022
By rushing, you are essentially betting on probabilities that certain assumptions will work out, instead of basing your investment decision on real analysis.
During the stock market decline in 2008 and 2009, I made significant improvements to the checklists as the decline exposed weaknesses in my investment process.
If I was unable to answer a question on the checklist (such as “are its managers honest?”), then I could identify the potential risks I was taking in an investment and the areas that I needed to spend more time researching.
You’ll learn how to assess whether the company’s accounting practices are conservative or liberal (so you can avoid a company like, for example, the now- defunct Enron)
There were many buying opportunities in 2008 when the S&P 500 dropped 36 percent. This was caused by forced selling. The market sell- off was exacerbated by the indiscriminate selling of stocks by money managers who were forced to sell stocks to fund client redemptions. Even if these money managers knew these stocks were undervalued, they had no choice but to sell. This forced selling created artificially low prices—which created a rare opportunity for investors. Other kinds of forced selling include situations when stocks are thrown out of an index because they no longer meet the minimum standards to remain in an index. Many investment managers who exclusively invest in stocks found in a particular index (such as the S&P 500) are forced to sell when the stock moves out of the index.
To learn which area of the stock market is in greatest distress, look for those areas where capital is scarce. Scarcity of capital creates less competition for assets, which decreases prices. Ask yourself, what areas of the stock market are investors fleeing, and why?
identify whether the sources of pessimism are temporary or permanent
Sun Microsystems was once valued as high as 10 times revenues when its stock traded for $64 per share. CEO Scott McNealy recalls that heady period: “At 10 times revenues, to give you a 10-year payback, I have to pay you 100 percent of revenues for 10 straight years in dividends.” McNealy noted that his assumptions include a few major obstacles such as getting shareholder approval for such a plan and not paying any expenses or taxes. Furthermore, McNealy noted that Sun Microsystems would also have to maintain its revenue run rate without investing in any R&D. McNealy asked, “Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are?”
Here are a few signs of a bubble:
• Lots of available capital
• Higher levels of leverage
• Decreased discipline from lenders as they try to get higher returns than through conventional lending guidelines
• Decreased responsibility for the borrower, combining high leverage and looser lending terms
Investors often need to adjust GAAP earnings to understand the real earnings of a business. I found that these ostensibly high price- to- earnings- ratio businesses were really trading at only five times earnings, not 50. Had I relied exclusively on stock screens, I would have missed many of my best investments.
For example, when I was researching the stock of Four Seasons Hotels, which had dropped in price after the September 11 terrorist attacks, its P/E ratio was 85 times earnings. Four Seasons had just taken several restructuring charges, which reduced the earnings of the business. After adjusting the earnings of the business for these restructuring charges (which were due to GAAP standards rather than actual cash charges), the P/E ratio was closer to 10 times earnings.
90 percent of the companies on the screen are cheap for a good reason. Many stay on these lists for a long time.”4 Sonkin believes the proper way to use a screen or new- lows list is to run them on a weekly basis and look for new companies that appear on the list. This way, you are able to separate the companies that deserve to be there from those that may only be suffering from a temporary problem.
I continued to research Apollo Group by attending industry conferences, listening to conference calls, and keeping up with SEC fi lings.
Value Line is a great source. (https://www.youtube.com/watch?v=Hme6Q...) I borrowed this idea from Charlie Munger, Vice Chairman of Berkshire Hathaway, who mentioned at an annual meeting that he leafs through these reports regularly to learn more about different types of businesses as well as to find opportunities. The main limitation of this source is that its publications cover only 3,500 stocks, and not all 9,000 publicly traded stocks in the United States.
Many investors (professionals included) generate ideas by closely tracking the holdings of well- known investment managers with above- average track records. Investors who manage the largest amounts (i.e., more than $100 million) have to disclose their investments each quarter in an SEC 13-F fi ling, so following them is straightforward (albeit slightly delayed). Early in my career, I occasionally sourced investment ideas from these managers.
trade journals as well, such as American Banker (if you are interested in financial services stocks) or Las Vegas Review- Journal (if you are interested in casino stocks).
The best investment ideas usually come from those businesses that are in distress. Focus on those articles that are not success stories but those about distress, to give you better odds of finding a well- priced investment.
Don’t Ignore Your Existing Investment Portfolio. If a stock you hold drops in price, this may represent the best investment opportunity for you, especially compared to a stock you know less well.
At one point, our core holding Whole Foods Market traded at close to four times enterprise value to free cash flow, which means we could have bought the whole business (including debt net of cash) and paid for it in four years out of existing depressed free cash flow.
You can regularly research IPOs, spin- offs, and stocks of companies that are exiting bankruptcy. Gemfinder’s Spinoff & Reorganization Report. The biggest advantage of tracking these businesses is that there is not a public price to influence you. You can calculate a reasonable valuation range for the business in advance, and then compare your value to the business’s trading price.
What does it really do, and how does it make money?
If there was a term I did not understand, I researched its meaning or how it was calculated. I searched for articles and books on how to identify an efficient retailer, took classes to learn more about retail operations, and started going to industry conferences.
My own passion for retail has caused me to lose discipline at times, as I overlooked negative attributes and instead focused on the positive ones.
working either as a pink- collar, blue- collar, or underutilized white- collar [employee]
“What does the Internet world look like without Akamai Technologies?”
During the stock market decline in 2008 and 2009, I made significant improvements to the checklists as the decline exposed weaknesses in my investment process.
If I was unable to answer a question on the checklist (such as “are its managers honest?”), then I could identify the potential risks I was taking in an investment and the areas that I needed to spend more time researching.
You’ll learn how to assess whether the company’s accounting practices are conservative or liberal (so you can avoid a company like, for example, the now- defunct Enron)
There were many buying opportunities in 2008 when the S&P 500 dropped 36 percent. This was caused by forced selling. The market sell- off was exacerbated by the indiscriminate selling of stocks by money managers who were forced to sell stocks to fund client redemptions. Even if these money managers knew these stocks were undervalued, they had no choice but to sell. This forced selling created artificially low prices—which created a rare opportunity for investors. Other kinds of forced selling include situations when stocks are thrown out of an index because they no longer meet the minimum standards to remain in an index. Many investment managers who exclusively invest in stocks found in a particular index (such as the S&P 500) are forced to sell when the stock moves out of the index.
To learn which area of the stock market is in greatest distress, look for those areas where capital is scarce. Scarcity of capital creates less competition for assets, which decreases prices. Ask yourself, what areas of the stock market are investors fleeing, and why?
identify whether the sources of pessimism are temporary or permanent
Sun Microsystems was once valued as high as 10 times revenues when its stock traded for $64 per share. CEO Scott McNealy recalls that heady period: “At 10 times revenues, to give you a 10-year payback, I have to pay you 100 percent of revenues for 10 straight years in dividends.” McNealy noted that his assumptions include a few major obstacles such as getting shareholder approval for such a plan and not paying any expenses or taxes. Furthermore, McNealy noted that Sun Microsystems would also have to maintain its revenue run rate without investing in any R&D. McNealy asked, “Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are?”
Here are a few signs of a bubble:
• Lots of available capital
• Higher levels of leverage
• Decreased discipline from lenders as they try to get higher returns than through conventional lending guidelines
• Decreased responsibility for the borrower, combining high leverage and looser lending terms
Investors often need to adjust GAAP earnings to understand the real earnings of a business. I found that these ostensibly high price- to- earnings- ratio businesses were really trading at only five times earnings, not 50. Had I relied exclusively on stock screens, I would have missed many of my best investments.
For example, when I was researching the stock of Four Seasons Hotels, which had dropped in price after the September 11 terrorist attacks, its P/E ratio was 85 times earnings. Four Seasons had just taken several restructuring charges, which reduced the earnings of the business. After adjusting the earnings of the business for these restructuring charges (which were due to GAAP standards rather than actual cash charges), the P/E ratio was closer to 10 times earnings.
90 percent of the companies on the screen are cheap for a good reason. Many stay on these lists for a long time.”4 Sonkin believes the proper way to use a screen or new- lows list is to run them on a weekly basis and look for new companies that appear on the list. This way, you are able to separate the companies that deserve to be there from those that may only be suffering from a temporary problem.
I continued to research Apollo Group by attending industry conferences, listening to conference calls, and keeping up with SEC fi lings.
Value Line is a great source. (https://www.youtube.com/watch?v=Hme6Q...) I borrowed this idea from Charlie Munger, Vice Chairman of Berkshire Hathaway, who mentioned at an annual meeting that he leafs through these reports regularly to learn more about different types of businesses as well as to find opportunities. The main limitation of this source is that its publications cover only 3,500 stocks, and not all 9,000 publicly traded stocks in the United States.
Many investors (professionals included) generate ideas by closely tracking the holdings of well- known investment managers with above- average track records. Investors who manage the largest amounts (i.e., more than $100 million) have to disclose their investments each quarter in an SEC 13-F fi ling, so following them is straightforward (albeit slightly delayed). Early in my career, I occasionally sourced investment ideas from these managers.
trade journals as well, such as American Banker (if you are interested in financial services stocks) or Las Vegas Review- Journal (if you are interested in casino stocks).
The best investment ideas usually come from those businesses that are in distress. Focus on those articles that are not success stories but those about distress, to give you better odds of finding a well- priced investment.
Don’t Ignore Your Existing Investment Portfolio. If a stock you hold drops in price, this may represent the best investment opportunity for you, especially compared to a stock you know less well.
At one point, our core holding Whole Foods Market traded at close to four times enterprise value to free cash flow, which means we could have bought the whole business (including debt net of cash) and paid for it in four years out of existing depressed free cash flow.
You can regularly research IPOs, spin- offs, and stocks of companies that are exiting bankruptcy. Gemfinder’s Spinoff & Reorganization Report. The biggest advantage of tracking these businesses is that there is not a public price to influence you. You can calculate a reasonable valuation range for the business in advance, and then compare your value to the business’s trading price.
What does it really do, and how does it make money?
If there was a term I did not understand, I researched its meaning or how it was calculated. I searched for articles and books on how to identify an efficient retailer, took classes to learn more about retail operations, and started going to industry conferences.
My own passion for retail has caused me to lose discipline at times, as I overlooked negative attributes and instead focused on the positive ones.
working either as a pink- collar, blue- collar, or underutilized white- collar [employee]
“What does the Internet world look like without Akamai Technologies?”
May 3, 2019
This book is for serious investors as Warren Buffet said "If you are not willing to hold a stock for 10 years, don`t hold it for 10 minuets".
When investor makes precise, deep & logic analysis to a business, he would buy the business as a business not just a stock. Investor will not care if the stock price slipped temporary because of Mr. Market`s emotions.
This book provides in-depth guidelines to evaluate businesses and make smart investments.
When investor makes precise, deep & logic analysis to a business, he would buy the business as a business not just a stock. Investor will not care if the stock price slipped temporary because of Mr. Market`s emotions.
This book provides in-depth guidelines to evaluate businesses and make smart investments.
January 26, 2017
Não é nem um bom livro de Value Investment nem um bom livro de Análise Financeira de empresas.
Faz alguns insights sobre aquilo que deve-se ter atenção sobre a administração das empresas o que faz valer a leitura.
Faz alguns insights sobre aquilo que deve-se ter atenção sobre a administração das empresas o que faz valer a leitura.
September 12, 2025
The Holy Grail Investment Checklist
August 21, 2018
The mind constantly plays tricks with investors. In a stressful - potentially loss-making - situation the negative pressure risks short-circuiting our analytical ability and when looking at new investments greed makes the investor susceptible to buying into management’s song and dance when showcasing the benefits of the company. No matter how experienced you are as an investor you will always benefit from having a checklist that breaks the spell of the moment and ensures that positive and negative aspects of the situation are covered. It will - if well crafted - also make you focus on the few important key issues of the investment. Further, realizing that there are issues that you don’t have answers to can also be of huge value as warning signs. In The Investment Checklist Texas investor Michael Shearn shares the checklists he has been using for the last decade when researching new investments. The author’s purpose is to teach the reader what he needs to know about the companies he thinks of investing in and help him to evaluate if the company is worth the investors money or not. While not explicitly stated as a target group I think the book will help the franchise type of value investor the most.
The book kicks of with a chapter on how to generate new investments; basically describing a search for bombed out, low multiple, deep value stocks where investor pessimism rules but the problems at hand might be temporary. Then the rest of the text covers a list of topics to be analyzed. They could be; the strategic and operational strength and weaknesses of the company, the financial strength of the business, the growth opportunities, the track record in M&A etc. Most chapters consist of a number of checklist questions with a subsequent paragraph discussing the topic. One of the impressive features of the book is the focus placed on corporate management. More than a third of the book discusses how to analyze the executives in charge. To me this is one of the trickiest areas in investing so even if the text in itself isn’t revolutionary the focus is well deserved and it is relatively rare in investment literature. Overall, he who reads through the chapters will be rewarded with plenty of wise thoughts on how to evaluate a company.
Even so, the book isn’t a jackpot in my mind. The analytical methodology an investor uses should be tailored to the type of investment opportunities he is looking at and the investment style he uses. This checklist to me feels a bit too generic with the inherent risk that it will not be perfect for anyone. For example, take the bombed out type of stock from the opening chapter, if I researched this the task would be to understand what will change to the better and my focus would be: a) What is the risk of the stock being a value trap? i.e is the sector or the company in structural decline and is the current shareholders equity or earnings therefore not representative of the future? b) Are the finances strong enough to sustain a prolonged period of weak cash flows before an improvement occurs? c) What could be the triggers to the turn around? i.e. what will change to make things better? d) And what will the normalized financials look like? An analysis should zero in on the key issues for the type of investment at hand. A lengthy analysis of the quality of current management might not be as important. Getting rid of them might event be the trigger needed. Another thought is if there couldn’t be a way to quantify the results of the analysis. A checklist is never an exact yardstick to go by. Even so, I think a numeric rating of the issues can help an investor in his thought process. At least it has helped me.
For the long term investor a deep fundamental understanding of the business of the companies he owns is crucial. Without it he will lack conviction and will risk selling due to market volatility, potentially missing the structural improvements underway. This checklist will take you a long way in gaining understanding but the last touch on how to build your own checklist must be up to you.
The book kicks of with a chapter on how to generate new investments; basically describing a search for bombed out, low multiple, deep value stocks where investor pessimism rules but the problems at hand might be temporary. Then the rest of the text covers a list of topics to be analyzed. They could be; the strategic and operational strength and weaknesses of the company, the financial strength of the business, the growth opportunities, the track record in M&A etc. Most chapters consist of a number of checklist questions with a subsequent paragraph discussing the topic. One of the impressive features of the book is the focus placed on corporate management. More than a third of the book discusses how to analyze the executives in charge. To me this is one of the trickiest areas in investing so even if the text in itself isn’t revolutionary the focus is well deserved and it is relatively rare in investment literature. Overall, he who reads through the chapters will be rewarded with plenty of wise thoughts on how to evaluate a company.
Even so, the book isn’t a jackpot in my mind. The analytical methodology an investor uses should be tailored to the type of investment opportunities he is looking at and the investment style he uses. This checklist to me feels a bit too generic with the inherent risk that it will not be perfect for anyone. For example, take the bombed out type of stock from the opening chapter, if I researched this the task would be to understand what will change to the better and my focus would be: a) What is the risk of the stock being a value trap? i.e is the sector or the company in structural decline and is the current shareholders equity or earnings therefore not representative of the future? b) Are the finances strong enough to sustain a prolonged period of weak cash flows before an improvement occurs? c) What could be the triggers to the turn around? i.e. what will change to make things better? d) And what will the normalized financials look like? An analysis should zero in on the key issues for the type of investment at hand. A lengthy analysis of the quality of current management might not be as important. Getting rid of them might event be the trigger needed. Another thought is if there couldn’t be a way to quantify the results of the analysis. A checklist is never an exact yardstick to go by. Even so, I think a numeric rating of the issues can help an investor in his thought process. At least it has helped me.
For the long term investor a deep fundamental understanding of the business of the companies he owns is crucial. Without it he will lack conviction and will risk selling due to market volatility, potentially missing the structural improvements underway. This checklist will take you a long way in gaining understanding but the last touch on how to build your own checklist must be up to you.
March 26, 2018
En este libro no encontrarás complicadas fórmulas, ni justificaciones sobre el valor actual de los flujos futuros, ni siquiera explicaciones sobre el uso de las hojas de cálculo..., y sin embargo éste es uno de los mejores libros que se pueden leer sobre cómo analizar compañías.
Siempre digo en mis clases que valorar compañías no es una ciencia, es un arte, pero que cuanta más ciencia sepas, mejor. Y "The investment checklist" te sumerge en la manera de trabajar que es más adecuada para aquell@s que quieran analizar compañías desde el punto de vista fundamental: ¿qué tipo de equipo gestor está al frente? ¿cómo trata a sus empleados? ¿y a sus proveedores? ¿cómo crea valor? ¿qué hacen sus competidores? ¿cuáles son las barreras de entrada? ¿son bajas o altas? El libro trata éstas y muchas otras preguntas, y lo hace de manera detallada, ofreciendo ejemplos reales tanto en el aspecto positivo como negativo, de manera que es fácil ir aprendiendo conforme se avanza. Lo mejor es que te prepara para plantearte las preguntas necesarias a la hora de analizar una empresa, qué es relevante y qué no, y por el camino aumentas tu cultura empresarial y financiera.
Un libro imprescindible.
Siempre digo en mis clases que valorar compañías no es una ciencia, es un arte, pero que cuanta más ciencia sepas, mejor. Y "The investment checklist" te sumerge en la manera de trabajar que es más adecuada para aquell@s que quieran analizar compañías desde el punto de vista fundamental: ¿qué tipo de equipo gestor está al frente? ¿cómo trata a sus empleados? ¿y a sus proveedores? ¿cómo crea valor? ¿qué hacen sus competidores? ¿cuáles son las barreras de entrada? ¿son bajas o altas? El libro trata éstas y muchas otras preguntas, y lo hace de manera detallada, ofreciendo ejemplos reales tanto en el aspecto positivo como negativo, de manera que es fácil ir aprendiendo conforme se avanza. Lo mejor es que te prepara para plantearte las preguntas necesarias a la hora de analizar una empresa, qué es relevante y qué no, y por el camino aumentas tu cultura empresarial y financiera.
Un libro imprescindible.
June 7, 2025
It has taught me how good it is that I have analysts doing these for me at the investing newsletter I work at. I wouldn't want to go though all these before buying stuff, as it seems tedious. They are the ones who recommended this book to me and I can clearly see its influence on their process, as in the analyses I see many of these points surfacing, and I also found many companies mentioned in this book that ended up in our investable universe. Most importantly it has sold me on Brookfield that I'm aiming to own now.
I think this is stronger on the qualitative side but there are a few sections that detail quant aspects as well. Overall it's well-rounded, and it can help you craft a thesis from all possible angles. I particularly liked the lengthy parts on evaluating management quality.
You know what's nice? You can go to Amazon, read sample, scroll back up and read the TOC. There you have it, the entire checklist as the 59 items correspond to chapter titles!
I didn't expect much based on the relatively boring cover (yes I judge) but the level of detail and the surprisingly good narrator made me reward this with a 5.
I think this is stronger on the qualitative side but there are a few sections that detail quant aspects as well. Overall it's well-rounded, and it can help you craft a thesis from all possible angles. I particularly liked the lengthy parts on evaluating management quality.
You know what's nice? You can go to Amazon, read sample, scroll back up and read the TOC. There you have it, the entire checklist as the 59 items correspond to chapter titles!
I didn't expect much based on the relatively boring cover (yes I judge) but the level of detail and the surprisingly good narrator made me reward this with a 5.
September 28, 2023
Here is another example of a book which's idea outdoes its contents. I cannot say that I found fault with the items on this very comprehensive checklist, yet at the same time I cannot say that I experienced any "a-ha" moments when reading my way through a sample of it. I read about 1/3 of the book in detail, leafing through the rest after I found the work lacked information and elaboration that was useful to me. I will keep this book as a reference through, because each of the items is pretty well described and introduced - a good starting point.
December 25, 2022
A fantastic book that will give you qualitative and quantitative questions for a deep analysis of the business.
The only minus is the longevity of some explanations which is really not necessary in my opinion. But this could be only me because I am already experienced in value investing.
Great book and a must-read for a value investor.
The only minus is the longevity of some explanations which is really not necessary in my opinion. But this could be only me because I am already experienced in value investing.
Great book and a must-read for a value investor.
August 5, 2025
An investment guide by cover and a gold mine in terms of management analysis. I am indebted to such books which help aspiring investors like me get my ideas sorted about evaluating various businesses. I don't want to say too much but i recommend this highly to anyone willing to make a mark in the investment world.
February 25, 2019
Good starting point to develop a research process based on fundamentals. First chapters are a bit common place on competitive advantages and "moats", but the management checklist is really insightful.
September 8, 2021
This is not your typical “borrow from the library and have a good read” type of book. It is really a thorough manual on how to invest rationally. With 59 checkboxes to mark per investment decision, it’s worth buying if you want to develop an objective way to grade your investment decisions.
November 3, 2022
A worthy attempt to systematise the research process, but all the questions are very standard - how the business makes money, returns, quality of management, etc. Would be a good introduction to equity research but there’s nothing unusual or controversial.
October 6, 2024
Absolutely a triple re read some time down the road
Not only useful to get my investment process a lot more robust on both quant and qualitative, but also helpful in helping entrepreneur think how to operate businesses
Not only useful to get my investment process a lot more robust on both quant and qualitative, but also helpful in helping entrepreneur think how to operate businesses
June 28, 2017
Too basic and clearly narrowed for a specific investment strategy. Expected a more objective In-Dept Research process.
June 17, 2018
Read this book
December 15, 2018
Masterclass book
September 16, 2019
What the title says, if you are looking for one you have to read this book
November 6, 2019
Comprehensive long-term perspective investing in great companies.
Qualitative mainly.
Qualitative mainly.
April 3, 2020
Clear and insightful for investors of all levels
August 1, 2020
Excellent book on the process of analysis.
August 10, 2020
Will add most of the Checklist to my Investment Checklist. This book provide deep insight for investor to check characteristic of wonderful business
March 10, 2021
excellent book full of practical advice and know how
July 24, 2021
Really good book on investing. If you read it you will see how much time you need to spend in order to gather the right knowledge for your investments.
August 10, 2022
A gem. Recommend to all levels of investors.
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