Hey Reddit! You might remember my post from a couple years ago: Warren Buffett Value Investing Cheat Sheet.
After I discovered the power of the checklist, a few criteria quickly grew into a quantitative handbook. Investing with a checklist saved me time, decreased stress, and improved my returns.
Below is the complete version of the well-received Investing Cheat Sheet. Are there any other criteria I'm missing? What metrics do you look for? I'm specifically interested in fleshing out the impact checklist (Sustainability).
Note: You will not find a company that fits EVERY criteria. The aim is to build portfolios targeting individual checklists (factors). Portfolios targeting individual checklists should give you good diversification, especially if invested across geographies.
11 CHECKLISTS in this post:
☐ Price / Earnings < 15.0
☐ Price / Book Value < 1.5
☐ Price / Sales < 1.5
☐ Price / FCF < 15.0
☐ PEG < 1.0
☐ Price / TBV < 0.7
☐ Price / NCAV < 1
☐ EV / EBITDA < 8.0
☐ Current P/E is 30%
☐ ROA > 15%
☐ ROTA > 20%
☐ ROIC > 20%
☐ ROCE > 20%
☐ ROIC-WACC > 0.2
☐ Inventory Turnover > 4.0
☐ Accounts Payable Turnover > 3.0
☐ Accounts Receivable Turnover > 5.0
☐ Pre-tax Margin > 15%
☐ Free Cash Flow Margin > 10%
☐ Current Ratio > 1
☐ Quick Ratio > 1.5
☐ Flow Ratio < 1.25
☐ Liabilities / Equity < 0.8
☐ Debt / Equity < 0.5
☐ Debt / EBITDA < 4.0
☐ Debt / TBV < 0.7
☐ EBIT / Assets > 20%
☐ Debt / NCAV < 2.0
☐ Long-term Debt / Working Capital < 2.0
☐ Interest Coverage Ratio > 8.0
☐ FCF / Sales > 8%
☐ Dividend Yield > 2%
☐ Dividend Yield > ⅔ the AAA Bond Yield
☐ Number Of Consecutive Years Increasing Dividends > 9
☐ FCF / Dividends Paid > 2.5
☐ EPS / Dividends Paid > 2.5
☐ Payout Ratio < 40%
☐ No Dividend Cuts In The Last 10yrs
☐ Earnings Yield > 12%
☐ EBIT Yield > 12%
☐ # Of Years Where Earnings Growth 10%
☐ Forward P/E / Trailing P/E > 1.1
☐ Operating Cash Flow > EPS
☐ # Of Years With Declining EPS < 2
☐ Current EPS / EPS 10yrs ago > 3.0
☐ Earnings Misses in the Last 24 Months = 0
☐ Altman Z-score >= 3.5
☐ Piotroski F-score >= 7.0
☐ Beneish M-score < -3.0
☐ Positive 1-month price momentum
☐ Positive 3-month price momentum
☐ Positive 6-month price momentum
☐ SMA 50 > SMA 200
☐ EMA 12 > EMA 26
☐ RSI < 30
☐ Positive HMA
☐ Management shareholding > 10%
☐ Management have bought more shares than were sold in last 3 months
☐ Management Compensation growth rate < Revenue Growth Rate
☐ CDP Climate Score = A
☐ Total ESG Risk Score > BB
☐ Beneish M-score < -3.0
Look at the last 10 years of data, year over year and make sure there is low volatility and high growth for:
☐ Sales
☐ Earnings
☐ Book value
☐ Free cash flow
☐ dividends
☐ Return on equity
☐ Current ratio
☐ Debt / equity (declining)
☐ Net margin (declining)
☐ Inventory turnover
Stay away from qualitative judgement as much as you can. But if you must:
☐ Can I say in one sentence what the company does?
☐ Does the company have a competitive advantage / moat?
☐ Does the company have few / no competitors?
☐ Is the company within my circle of competence?
☐ Have I read at least the most recent earnings report?
☐ Do I trust / like the management?
☐ Does the company have a credit rating of at least BB?
☐ Do I like this company?
☐ Is the company ethical?
☐ Does this company give me international exposure?
☐ Will this company be around in 20 years?
☐ If the stock market closed tomorrow for the next five years, would I still buy this company?
☐ Will this company help diversify my portfolio?
☐ Does the company treat its employees well?
☐ Are insiders buying shares?
☐ Is the industry and company sustainable?
☐ Is the company still growing?
☐ Are analysts optimistic about the company?
☐ Is the stock "screaming" cheap?
☐ Can I say in one paragraph why I am buying this company?
☐ Do I have an exit strategy?
Step 1. Choose the amount to invest (eg. $10,000)
Make sure you've thought about:
After I discovered the power of the checklist, a few criteria quickly grew into a quantitative handbook. Investing with a checklist saved me time, decreased stress, and improved my returns.
Below is the complete version of the well-received Investing Cheat Sheet. Are there any other criteria I'm missing? What metrics do you look for? I'm specifically interested in fleshing out the impact checklist (Sustainability).
Note: You will not find a company that fits EVERY criteria. The aim is to build portfolios targeting individual checklists (factors). Portfolios targeting individual checklists should give you good diversification, especially if invested across geographies.
11 CHECKLISTS in this post:
- Value
- Efficiency
- Health
- Dividend
- Growth
- Ratings
- Technical
- Management
- Impact
- Performance
- Questions
THE VALUE CHECKLIST
☐ Price / Earnings < 15.0
☐ Price / Book Value < 1.5
☐ Price / Sales < 1.5
☐ Price / FCF < 15.0
☐ PEG < 1.0
☐ Price / TBV < 0.7
☐ Price / NCAV < 1
☐ EV / EBITDA < 8.0
☐ Current P/E is 30%
☐ ROA > 15%
☐ ROTA > 20%
☐ ROIC > 20%
☐ ROCE > 20%
☐ ROIC-WACC > 0.2
☐ Inventory Turnover > 4.0
☐ Accounts Payable Turnover > 3.0
☐ Accounts Receivable Turnover > 5.0
☐ Pre-tax Margin > 15%
☐ Free Cash Flow Margin > 10%
THE HEALTH CHECKLIST
☐ Current Ratio > 1
☐ Quick Ratio > 1.5
☐ Flow Ratio < 1.25
☐ Liabilities / Equity < 0.8
☐ Debt / Equity < 0.5
☐ Debt / EBITDA < 4.0
☐ Debt / TBV < 0.7
☐ EBIT / Assets > 20%
☐ Debt / NCAV < 2.0
☐ Long-term Debt / Working Capital < 2.0
☐ Interest Coverage Ratio > 8.0
☐ FCF / Sales > 8%
THE DIVIDEND CHECKLIST
☐ Dividend Yield > 2%
☐ Dividend Yield > ⅔ the AAA Bond Yield
☐ Number Of Consecutive Years Increasing Dividends > 9
☐ FCF / Dividends Paid > 2.5
☐ EPS / Dividends Paid > 2.5
☐ Payout Ratio < 40%
☐ No Dividend Cuts In The Last 10yrs
THE GROWTH CHECKLIST
☐ Earnings Yield > 12%
☐ EBIT Yield > 12%
☐ # Of Years Where Earnings Growth 10%
☐ Forward P/E / Trailing P/E > 1.1
☐ Operating Cash Flow > EPS
☐ # Of Years With Declining EPS < 2
☐ Current EPS / EPS 10yrs ago > 3.0
☐ Earnings Misses in the Last 24 Months = 0
THE RATINGS CHECKLIST
☐ Altman Z-score >= 3.5
☐ Piotroski F-score >= 7.0
☐ Beneish M-score < -3.0
THE TECHNICALS CHECKLIST
☐ Positive 1-month price momentum
☐ Positive 3-month price momentum
☐ Positive 6-month price momentum
☐ SMA 50 > SMA 200
☐ EMA 12 > EMA 26
☐ RSI < 30
☐ Positive HMA
THE MANAGEMENT CHECKLIST
☐ Management shareholding > 10%
☐ Management have bought more shares than were sold in last 3 months
☐ Management Compensation growth rate < Revenue Growth Rate
THE IMPACT CHECKLIST
☐ CDP Climate Score = A
☐ Total ESG Risk Score > BB
☐ Beneish M-score < -3.0
THE PERFORMANCE CHECKLIST
Look at the last 10 years of data, year over year and make sure there is low volatility and high growth for:
☐ Sales
☐ Earnings
☐ Book value
☐ Free cash flow
☐ dividends
☐ Return on equity
☐ Current ratio
☐ Debt / equity (declining)
☐ Net margin (declining)
☐ Inventory turnover
QUESTIONS
Stay away from qualitative judgement as much as you can. But if you must:
☐ Can I say in one sentence what the company does?
☐ Does the company have a competitive advantage / moat?
☐ Does the company have few / no competitors?
☐ Is the company within my circle of competence?
☐ Have I read at least the most recent earnings report?
☐ Do I trust / like the management?
☐ Does the company have a credit rating of at least BB?
☐ Do I like this company?
☐ Is the company ethical?
☐ Does this company give me international exposure?
☐ Will this company be around in 20 years?
☐ If the stock market closed tomorrow for the next five years, would I still buy this company?
☐ Will this company help diversify my portfolio?
☐ Does the company treat its employees well?
☐ Are insiders buying shares?
☐ Is the industry and company sustainable?
☐ Is the company still growing?
☐ Are analysts optimistic about the company?
☐ Is the stock "screaming" cheap?
☐ Can I say in one paragraph why I am buying this company?
☐ Do I have an exit strategy?
HOW TO BUILD A PORTFOLIO WITH THE CHECKLISTS (6 Steps):
Step 1. Choose the amount to invest (eg. $10,000)
Make sure you've thought about:
- Have a six month emergency cash pile
- Pay off high interest debt first
- Eliminate your worst spending habits
- Think about your time horizon
- Max out your pension contributions
- Industries
- Countries
- Nano-cap (
