Investment Checklist

Many investors have a checklist they check off before investing in a company. I have one too and here are some elements from it:

1. Profitability: the company has to be insanely profitable with little requirement for additional capital.
1. Return on assets > 10%
2. Return on equity > 20%
3. Cash flow ~= Net earnings (i.e. depreciation and cap-ex should be about the same)
4. Non-cyclical earnings and good growth
2. What is competitive advantage, and is it sustainable?
3. Low or no leverage should be needed to grow the business: the really good businesses are the ones that need no reinvested capital to grow. Think about See's Candies.
4. Good management: ideally management should have skin in the game and should be competent and honest.
5. Good price: I admit I sometimes compromise on this. It is almost impossible to find companies that satisfy the above 3 requirements that are also cheap. Good companies are recognized by the market.

The full checklist is rather long, and maybe I'll post it some other time. But I really want to analyze some good companies in the next few posts, so I'll end this here.