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Investment Checklist for Stock Selection

October 28, 2010
Inoculated Investor

Jae Jun

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.

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

Old School Value Investment Checklist Process

Core Investment Checklist

Here is the text version.

Do the Pre Work

Preliminary Background Reading

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

Financial Statement Analysis

Competitor comparisonVerify 15 value investing metrics and ratiosDiscounted Cash Flow/ Graham’s Value/ Earnings Power Value/ Multiples/ Sum of Parts[/list]Dirty Work

  • 2 annual reports
  • 3 quarterly reports[list]
  • 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[/list]

Emotional Check

  • Write down how you are feeling
  • Beware of[list]
  • 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

  • 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?

You may also be interested in:

  1. Graham’s Stock Selection Screen Part 2
  2. A Test of Graham’s Stock Selection Criteria
  3. Company Assessment, Checklist and Spider Graphs

About the author:

Jae Jun

My name is Ben C. and I am 2nd year MBA candidate at the Anderson School of Business at the University of California- Los Angeles. I have a BS in Economics from the Wharton School of Business at the University of Pennsylvania. Before coming to Anderson I worked as a generalist equity research analyst for Right Wall Capital, a long-short equity hedge fund located in New York City. Prior to working at Right Wall I worked as an analyst at Blue Ram Capital, another long-short equity hedge fund located in Rye Brook, NY. This past summer, I worked for West Coast Asset Management as a research analyst. West Coast, which was co-founded by Kinko’s founder Paul Orfalea, is run by well-known value investors Lance Helfert and Atticus Lowe.

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