Investing Tools 2: A Warren Buffet Style Investing Checklist

July 17, 2023

Everybody needs a good old-fashioned checklist!


Simple Yes or No answers to help guide you.


Business principles

  1. Is the business understandable?
  2. Do you know how the money is made?
  3. Does the business have a consistent operating history?
  4. Does the company have favourable long-term prospects?
  5. Is there a big moat around the business (a high threshold of entry)?
  6. Is it a business that even a dummy could make money in?
  7. Can current operations be maintained without too much needing to be spent?
  8. Is the company free to adjust prices to inflation?
  9. Have you read the annual reports of the main competitors?
  10. Has the management demonstrated a high degree of integrity (honesty)?
  11. Has the management demonstrated a high degree of intelligence?
  12. Has the management demonstrated a high degree of energy?
  13. Is management rational?
  14. Is management candid with shareholders (evidence in the past of open disclosure to the shareholders when there have been problems)?
  15. Has management resisted the temptation to grow quickly by merger?
  16. Has management the strength not to follow the institutional imperatives ( avoid following current business and sector fads)?
  17. Has the business been free of a major merger in the last 3 years ( many merger failures come out of the woodwork within this period)?
  18. Are stock options treated as an expense?


Financial principles

  1. Is the return on equity adequate?
  2. Is the company conservatively financed?
  3. Has the company had a track record of earnings growth in most years above the stock market average?
  4. Are the profit margins attractive (better than industry)?
  5. Has the company created at least one dollar of market value for every dollar of earnings retained?


Valuation principles

  1. Is the value of discounted earnings greater than the current market value?
  2. Have you discounted at a rate equal or greater than the 10 year bond rate (risk free rate)?
  3. Have cash flows been based on net income, plus depreciation, depletion, and amortization, less capital expenditure and additional working capital requirements?
  4. Has the company been temporarily punished for a specific risk that is not a long-term risk (the market tends to over punish the share price)?


The valuation principles are a bit hard. You can replace them by looking at the following ratios and comparing to the industry norms

  1. Price-to-Book ratio
  2. Price-to-Sales ratio
  3. Price-to-Earnings ratio
  4. Price-to-Cash Flow ratio


Happy Investing!!!


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