MY PERSONALIZED INVESTMENT CHECKLIST

I. QUANTITATIVE

a. Balance Sheet
1. Is (Current Assets - Total Liabilities) > Market Price of the Stock?
Does the stock sell for under 2/3(Current Assets - Total Liabilities)?
i.e. Substantial margin of safety (market price of 60% or less than business appraisal value)? Is the plant,
property, equipment etc selling for free?
2. To calc. liquidation value use the % reference below (or) (Current Assets - Total Liabilities)
Cash: 100%, Receivables: 75-90%, Inventories: 50-75%, Fixed Assets: 1-50% say 15%
3. Is the companies losing current assets at a rapid rate? Compare balance sheets over a period.
4. Is Current Assets > 2 x Current Liabilities
Is Current Assets (excl. inventories) > Current Liabilities
5. Is Long Term Debt < (Current Assets - Total Liabilities).
Debt < 1.1(Current Assets - Total Liabilities)
For utilities, debt should not exceed twice the stock equity at book value. N/A Railroads.
Notes payable ≥ (Cash + Receivables) is not good.
Total Liab./Equity ratio ≤ 2 and conservative capital structure?

b. Income Statement & Cash Flow

6. Stable (+ve) or Increasing Earnings for atleast the past 10 years? A minimum increase of at least one-third in
per-share earnings in the past 10 years as measured by three-year averages at both ends of the period.
Exercise caution for a company retaining most of earnings - they will automatically show a higher earnings e.g.
increasing deposits in a savings account will inc. earnings;
7. Increasing Owner earnings (FCF) greater that stock market average? - a company's net income plus
depreciation, depletion and amortization, less the amount of capital expenditures and any additional working
capital that might be needed.
8. Potential for highest look-through earnings 10 years from now without requiring additional capital?
Look: through earnings
= Op. earnings
+ Share of retained op. earnings of investees not relected in proits GAAP
− Taxes paid if these retained earnings were paid
9. Is something artificial temporarily driving up earnings, unsustainably e.g. The Fed?
10. (Avg. E/P, Earnings Power) ≥ Current high grade bond rate
11. High operating cash flow and low investing cash flow?
12. Consider 3 peaks in say 1987, 1999 and 2007. Did company EPS increase from '99 to '07 atleast as much as EPS
increase from '87 to '99. [Growth test].

c. Performance & Valuation

13. Calculate value of business as net cash flows expected to occur over the life of the business, discounted at an
appropriate interest rate, using the rate of the long-term U.S. government bond. 40% Margin of safety? How
confident are you of the business value and what is the probability of business value decreasing over a
decade?
14. What prices do similar companies trade at in the marketplace?
15. Do earnings over many years result in balance sheet value changes? Growing revenue & book value?
16. Is the company sufficiently large for an investment? Sufficient $ value market price per share? Be cautious of
stocks with market price < $ 5.00.

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17. Stable or increasing dividends for 20 years. High dividend yield? Eligible preferential tax treatment for
dividends?
18. Moderate Price/Earnings Ratio (P/E): Should be less than 15 times the average earnings of the past 3 years.
Use EBIT/Enterprise Value since less influenced by changes in debt levels & tax rates than P/E
Moderate Ratio of Price to Assets (P/B): Current price should not be more than 1.5 times the last reported
book value
Common Stock + Surplus & Reserves − Intangibles
BVPS =
No. of outstanding shares
The P/E multiplied by P/B ≤ 22.5.
Is market price ≤ 1.2 x (net tangible assets)?
Growth Rate + Div. Yield
Q=
P/E
If Q> 2 great; 1-2 OK; <1 poor.
P/E
PEG =
Annual EPS growth in %
Is the stock PEG low enough? 1 is normal.
19. Is the stock at a 52-week low? Low price in relation to a previous high price?
20. 5-year average ROE of ≥ 15 (preferably 20) without excessive leverage?
21. Is the company a low cost operation with high predictable & increasing profit margins i.e. > 1.2 x Industry
margin? What is the company doing to maintain or improve profit margins? How efficient are company
operations?
22. 5-yr average return on invested capital of ≥ 12. Look for improvement in ROIC.
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HEC7I< J<E<6?9<K LM NEANA9?8E?LO< 6?9<A 7P 6<9N6E 7E 5<EA87E PNEKA
ROIC = >79?O ?AA<9A=F?AQ,BQ769 ><6I HES,T7EHE9 U<?68EJ CN66<E9 O8?L:
V?A9 ?CC.CQ?6J<A 9Q?9 6<KNC<K 8ES<A9<K C?589?O
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ROC (simpliied) = T<9 X76D8EJ C?589?O : T<9 8@<K ?AA<9A 8JE768EJ J77KX8OO & YZ[\Z]Y^_`a)
23. High return on total capital (Net Income/Total Assets) ≥ 17%. Greenblatt demands > 25%.
24. Is Mr. Market behaving reasonable? Substantial market decline usually affects all stock prices. Look at [Market
cap./GNP], Shiller PE, Tobin Q, Corporate Profits/GDP indicator?
25. For insurance companies, calculate approx. cost of float (<Market Rate for borrowing is good), amount of float,
underwriting profitability, combined ratio, accurate loss reserving
Underwriting Loss
Approx. cost of funds = + Tax Penalty (~1%)
Avg. Float
Float = Net loss reserves + Loss Adjustment Reserves + Funds held under reinsurance assumed
+ Unearned premium reserves − (Agents balances + Prepaid acquisition costs
+ Prepaid taxes + Def. charges applicable to assumed reinsurance)

d. Fixed Income
26. Sufficient Margin of Safety on a Bond? = % (Earnings Power @ price paid - Rate of Interest on Bonds)
27. Are Earnings after taxes & minority interest approx. ≥ 5 x (fixed charges for bonds & preferred). For accurate
references for an industry see Ben Graham's table.
EBIT
Interest Coverage =
Interest Expenses
28. If bond has inadequate safety, is it priced ≤ 70 cents on the $ atleast?
29. Is current value of business well in excess of debt?
30. Be cautious about reaching for yield. Preferably stick to highest yielding obligation of soundest companies.

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31. Can the company repay debt even in years when earnings are lower than average?

II. QUALITATIVE
a. Management & Governance
32. Does the management exercise rational capital allocation? Re-investment opportunities? Opportunities to
grow/expand or saturated? Do they return money to shareholders by buybacks or dividends if there are not
sufficient re-investment options? Terrible acquisitions/mistakes and ridiculous competitor imitation of the
past? Has the company created atleast $ 1 of market value for every $ 1 retained? Any top mgmt.
resignations?
33. ESG Factors? Environmentally sustainable business? Occupational Health & Safety? Excellent Corporate
Governance? Quality of directors? Company reputability? Look at company's history of diluting ownership by
stock issuance. Is stock option plan unreasonable or based on organizational performance instead of individual
performance? Is stock options expensed? Is managerial compensation reasonable?
34. Great management and easy to understand business? Well reputed & long standing management and board
with track record of enhancing shareholder value? Family ownership? Do they eat their own cooking by
owning substantial amounts of stock? Do they explain problems frankly?
35. Has the management proven to be honest, demonstrated integrity and capability? Do you like, trust, respect
and admire management?
36. Ask management "What are you doing that competitors aren't doing yet" and "Most important long range
problem facing your company"?
37. Does the management have a determination to continue to develop products or processes that will still further
increase total sales potential when the growth potential of currently attractive product lines have largely been
exploited?
38. Does the company have depth to its management?
39. Does the company have a short-range or long-range outlook in regard to profits?
40. Does company employ a profit based compensation? Has mgmt. demonstrated ability to rapidly control
expenses when required?
41. Has the management demonstrated conservative accounting?

b. Products, Business & Outlook

42. Repeat sales of product or 1-time purchase?
43. Does company derive large revenues from foreign countries (favourable currencies)?
44. Slow to change industry? Great long-term industry & business economics? Does fierce competition result in
slim margins? Is the company the best in industry with an increasing market share? Can modern
technology/foreign competition destroy the company?
45. Do you understand how the company makes its money? Is it a business that even a dummy can run?
46. Strong consumer brand / strong customer loyalty? Strong business franchise (business is needed or desired,
has no close substitute and is not regulated? Monopoly? Competitive Advantage? Is there a large enduring
moat that keeps getting larger around the business due to say cost & quality of service/products with
substantial barriers to entry? Nearly impossible to replicate business model & products?
47. Is the company a compounding machine affected by a temporary scandal/big loss/bad news depressing the
stock price? Do they provide an essential product that would be required 100 years from now?
48. Is the company free to adjust prices to inflation without resistance from customers?
49. Low investment in capital? Can current operations be maintained without much money to be spent?
50. Company has significant pricing power?

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51. Talk to company competitor's sales reps/suppliers/customers. Business grapevine i.e talking to internals &
externals regarding competitors.
52. Does the company have products or services with sufficient market potential to make possible a sizable
increase in sales for at least several years?
53. How effective are the company's research-and-development efforts in relation to its size?
54. Does the company have an above-average sales organization? Is it a business that does not require any sales
effort?
55. Does the company have outstanding labor, executive and personnel relations?
56. How good are the company's cost analysis and accounting controls? Low fixed costs?
57. Does the company sell products to many small customers e.g Walmart, rather than few large customers
(risky)? Is the growth tied to population increases (more sustainable) or changes in consumer behaviour?
58. Is the industry susceptible to overcapacity or commodity product? Does the company utilize a commodity to
produce its product that can impact profits?
59. If the company produces a commodity, is it on the lower end of the cost curve?
60. Ask CEO " If they had to put all their money in a company in the industry and go away for 10 years, which
would it be? And if they had to sell short under the same conditions, which company would it be, and why?"
61. Does company have a long-run cost advantage that is very hard for competitors to duplicate
62. Does company have a unique, or differentiated product or service that is hard for competitors to duplicate.

c. Miscellaneous
63. Are the financial statements easily understandable? Is there too much non-recurring/extraordinary/unusual
charges? Has the company been public for atleast 10 years?
64. Look at insider trading of the stock, cannibals (big buybacks), "Guru" purchases of the stock. Any pending SEC
investigations?
65. If > 60% stock is owned by institutions, be cautious as they tend to run like sheep as markets drop.
66. High quality ranking by S&P, Moody's, Fitch, analysts following stock?
67. Have there been any M&A transactions in the last 3 years and if so, what are the details of the prices paid?
68. How does the company fit into the portfolio? Sufficient diversity?
69. Significant off-balance sheet liabilities and post retirement liabilities? Does the company have convertible
bonds that can dilute ownership in the future?
70. Read the annual report from the back. Front pages will reflect company's strengths. Read proxy statement,
competitor annual reports, company news.
71. Is the currency of purchase undervalued? Is bulk of earnings obtained outside North America? Potential for
global growth?
72. Is the company a worthwhile "forever" holding? Would I be willing to put my entire portfolio into this stock
and never sell it? Tax Efficiency?
73. Recession Proof and Low-Beta?
74. Choose categories: Stock doubling in 2-3 years (75% portfolio)? Tripling (10%)? Quadrupling (5%)? 5 times
(5%)? Evaluating the downside is critical. Heads I win, Tails I don't lose that much.
75. Have you talked to a smarter and better investor regarding your decision to purchase this stock?
76. 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?
77. Is your stake substantial to work as a control situation or influencing the board?

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78. 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?
79. Analyze why the business is undervalued. Are you missing something? Is there a catalyst to enhance market
value of stock?
80. Find a credential bear and hear/analyze the argument.
81. Business based or derives its revenue from a politically unstable country?
82. Disciplined and sensible share buybacks?

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