Sunday, 14 September 2014

A Warren Buffet styled “Investment checklist”

A Warren Buffet styled “Investment checklist”

A Warren Buffet styled “Investment checklist”
Business tenets
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?

Management tenets
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 tied to SMT performance rather organisation’s performance (if your team wins you do not pay a .35 hitter the same as a .15 hitter.) ?
19.Are stock options treated as an expense?
Financial tenets
20.Is the return on equity adequate? 
21.Is the company conservatively financed?
22.Has the company had a track record of earnings growth in most years above the stock market average?
23.Are the profit margins attractive (better than industry)?
24.Has the company created at least one dollar of market value for every dollar of earnings retained?
Value tenets
25.Is the value of discounted earnings greater than the current market value?
26.Have you discounted at a rate equal or greater than the 10 year bond rate (risk free rate) ?
27.Have cash flows been based on net income, plus

depreciation, depletion, and amortization, less capital expenditure and additional working capital requirements?

28.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)?

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