My Investing Checklist

A checklist is necessary because it forces us to go through a process instead of relying on ‘just winging it’. A process is important because a process can be analyzed, measured, and improved over time. ‘Winging it’ cannot be improved over time.

Some of these items on the checklist are extensions of other things, but they mainly measure skin in the game and antifragility. Before I wrote this checklist I never knew that. I highly recommend every investor try to write out their checklist and then their strategy as it contributes to your overall growth as an investor. It was painful doing this (which is good. Painful growth = fast and quality growth).

Last point: If you have any input, questions, or concerns just comment below. I would love to hear your input.

1. Is the business financially strong?

This is overlooked by most ‘investors.’ Things are high-flying right now, but they won’t always be. Many people will learn, sooner or later, that financial strength in a business matters very much.

  1. Low debt (debt to equity)

  2. High financial quality

    1. Altman Z-Score (bankruptcy risk)

    2. Piotroski F-Score (overall financial quality)

    3. Beneish M-Score (earnings manipulation)

  3. Strong Free Cash Flow (FCF)

  4. Increasing revenue

  5. Increasing net income

  6. Strong and increasing profit margins

  7. What is their credit rating?

    Note: All of the above go out the window when considering micro-cap businesses.

2. Is there strong opportunity for the business?

Put another way: How many people will eventually use this product? (hopefully on a recurring basis)

  1. Is there a large TAM? Is it growing rapidly?

  2. What is the business model?

    1. Does it grab you?

    2. Does it align with how you think the future will play out?

  3. Are there barriers to entry?

  4. What pitfalls are there in the industry? (FDA approval, regulatory)

  5. Does the product cost relatively little to users while having a major impact? (Microsoft comes to mind)

  6. Is the product ‘sticky’? Does it spread via sales teams or more like wildfire?

3. Is leadership exceptional?

Exceptional leadership can take a hum-drum business to the moon. Poor leadership can wreck a business that runs itself.

  1. Is the founder also the CEO?

  2. Does the founder/CEO have a proven track record of growing companies over the long term?

  3. Is the CEO a ‘missionary’? (Meaning: will they keep doing their best with their heart and soul after being beaten and bloodied by the market)

  4. Is leadership obsessed with product or customers?

  5. What is ‘king’ for the company and leadership? Profit? Innovation? Exploration?

  6. Is skin in the game (SITG) injected down the hierarchy? (employees owning stock)

  7. Does leadership have much of their own net worth in stock? (~25% or more)

  8. Is leadership embracing risk of innovation to future-proof their moat? (Just like the microsoft kin, windows phone, and clippy. Or the amazon spark, pop-up stores, dash buttons, instant pickup.)

4. _________

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