GuruFocus is pleased to announce that we have made a big improvement to our “Investment Checklist” feature. Now you can do much more with the “Investment Checklist”:
- Build multiple checklists and apply different checklist to different type of companies.
- Pre-existing checklists are provided. You can simply apply those to your stocks, or create new ones based on these pre-existing checklists.
- You can link each item of the checklist to parameters related business operations (sales, earnings, growth, profit margins etc), valuations (P/E, P/S, peter lynch charts).
- The checklist you use for a stock will be saved and it will display automatically again next time you come to the stock.
- Unlimited number of checklists. Unlimited number of items in each checklist.
- A note box where you can write down your notes while going through the checklist.
- Make the check list public or private.
It is at the tab highlighted in the chart below:
Why Checklists Are Important in Investing?
The idea of using a checklist in airline cockpit and the operating room has been described in detail in the book by Atul Gawande’s Checklist Manifesto. Hedge fund guru Mohnish Pabrai (Trades, Portfolio) built his personal checklist by looking at the public record of the investors he admired and deconstructing the mistakes they made — cases where there were klaxons sounding even the great ones missed. He cites the example of Berkshire Hathaway’s purchase of Dexter Shoes — a New England factory with a great product used by everyone with feet.
Human brain forgets. Sometimes we even forget things that are very important. Using a checklist can help you catch something you didn't check or didn't think about. It can also make your investment routine more organized and efficient. Pabrai made an analogy to pilots, who go through a detailed checklist just prior to a flight.
With GuruFocus Checklist feature you can build your own checklists, improve them over time and check back to see your investment thesis later.
Pre-Existing Checklist
We have built a number of pre-existing checklists that you can use. You can also create your own based on the ones we built. These pre-existing checklists are:
- Phil Fisher growth companies
- Peter Lynch fast growers
- Peter Lynch Stalwarts
- Ben Graham net-net
- John Paulson (Trades, Portfolio) merger arbitrage
Most of these checklists are built based on the books these Gurus have written. John Paulson (Trades, Portfolio)’s merger arbitrage checklist is based on this.
These are the details of these checklists:
Phil Fisher Growth Companies Checklist:
- Does the company have the products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
- Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
- How effective are the company’s research and development efforts in relation to its size?
- Does the company have an above average sales organization?
- Does the company have a worthwhile profit margin?
- What is the company doing to maintain or improve profit margins?
- Does the company have outstanding labor and personnel relations?
- Does the company have outstanding executive relations?
- Does the company have depth to its management?
- How good are the company’s cost analysis and accounting controls?
- Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
- Does the company have a short range or long range outlook in regards to profits?
- . In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth? (5y) Share Buyback Rate (3y) Share Buyback Rate (1y)
- Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
- Does the company have a management of unquestionable integrity?
Peter Lynch Fast Grower Checklist:
- Do I understand the business? Is this a simple business?
- Does the company have a diversified customer base?
- Does the company still have room to grow? Is the company has duplicated its successes in more than one city or town to prove that expansion will work?
- Does the company have meaningful profit margin (10% or higher)?Operating Margin Net Margin
- Does the company have a higher margin than competitors?
- Does the company have a stable margin or even increasing margin? Margin
- Is the growth speeding up? Is the earnings growth to date consistent?
- How did the company’s business fared during previous recessions?
- How did the company’s stock price fared during the previous recessions?
- Is the balance sheet strong?Debt Debt To Equity
- Is the product that’s supposed to enrich the company is a major part of the company’s business?
- What is the growth rate? 20% to 25% is the optimum rate
- Is the stock selling at a P/E ratio at or near growth rate?
- P/E ratio, high or low relative to historical value? The lower, the better
- P/E ratio relative to similar companies? The lower, the better
- The percentage of Institutional ownership. The lower the better
- Are insiders buying?
- Company buying back shares?
Peter Lynch Stalwarts
- Do I understand the business? Is this a simple business?
- Does the company have a diversified customer base?
- Does the company still have room to grow? Is the company has duplicated its successes in more than one city or town to prove that expansion will work?
- Does the company have meaningful profit margin (10% or higher)?Margin Net Margin
- Does the company have a higher margin than competitors?
- Does the company have a stable margin or even increasing margin? Margin
- Is the growth speeding up? Is the earnings growth to date consistent?
- How did the company’s business fared during previous recessions?
- How did the company’s stock price fared during the previous recessions?
- Is the balance sheet strong?
- Is the product that’s supposed to enrich the company is a major part of the company’s business?
- Is the company doing diwoseifications that may reduce earnings in the future?
- Is the stock selling at a P/E ratio at or near growth rate?
- P/E ratio, high or low relative to historical value? The lower, the better
- P/E ratio relative to similar companies? The lower, the better
- The percentage of Institutional ownership. The lower the better
- Are insiders buying?
- Company buying back shares? (5y) Share Buyback Rate (3y)
- Is the company's long term growth rate slowing down?
Ben Graham Net-Net Checklist:
- Stock price is less than 2/3 of net current asset value
- Safety (risk of bankruptcy, dilution, etc.): Does the company has a lot of debtCurrent Ratio Cash To Debt
- Cost structure, what if the company revenue declines but the cost stays the same
- Low Cash Burn: The company has enough cash to last several years even if it loses money
- Is insider selling?
- Share buy backs?
- How well do you understand the business?
John Paulson (Trades, Portfolio) Merger Arbitrage Checklist:
- The merger parties has Definitive Agreements, instead of Agreements in principle
- The merger has strategic rationale behind it
- No ï¬nancing condition.
- No due diligence condition
- Solidly performing target
- Reasonable valuation
- Limited regulatory risk
You can try the checklist here. As always, we welcome your feedback.
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