The Ultimate Investing Checklist

[irondad92]

Hey Reddit! You may remember me from this post: Warren Buffett Value Investing Cheat Sheet.

Below is the complete version of the well-received value investing cheat sheet. As mentioned before, it is nearly impossible for a company to tick all of these boxes in the current market, but they are useful guidelines.

This took me a long time to compile... I hope you derive value from it.

QUANTITATIVE METRICS:​

Value:

Price / Earnings < 15.0

Price / Book Value < 1.5

Price / Sales < 2.0

Price / FCF < 15.0

PEG < 1.0

Price / TBV < 0.7

Price / NCAV < 0.7

EV / EBITDA < 8.0

Current P/E to P/E 5yr High < 0.4

Current P/E to P/E 5yr Low < 0.8

Margin of safety below Intrinsic value > 30%

Efficiency:

ROE > 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 > 20%

Health:

Current Ratio > 0.3

Quick Ratio > 1.5

Flow Ratio < 1.25

Liabilities / Equity < 0.8

Debt / Equity < 0.5

Debt / EBITDA < 4.0

Debt / NCAV < 2.0

Long-term Debt / Working Capital < 2.0

Interest Coverage Ratio > 8.0

FCF / Sales > 8%

Growth:

Earnings Yield > 12%

EBIT Yield > 12%

# Of Years Where Earnings Growth < 2X Federal Bond Yield < 2

FCF Yield > 10%

Forward P/E to Trailing P/E > 1.1

Operating Cash Flow / EPS > 1.2

# Of Years With Declining EPS 3.0

Earnings Misses in the Last 24 Months = 0

Dividends:

Dividend Yield > 2%

Number Of Consecutive Years Increasing Dividends > 9

FCF / Dividends Paid > 2.5

EPS / Dividends Paid > 2.5

Payout Ratio < 40%

Number Of Dividend Cuts In Last 10yrs = 0.0

Ratings:

Altman Z-score >= 3.5

Piotroski F-score >= 7.0

Beneish M-score < -3.0

HISTORICAL PERFORMANCE:​

Look at the last 10 years of data, year over year and make sure there is low volatility and high growth (except for net margin and debt/equity) for:

- Sales

- Earnings

- Book value

- Free cash flow

- dividends

- Return on equity

- Current ratio

- Debt / equity

- Net margin

- Inventory turnover

QUALITATIVE METRICS:​

What does the company do (in one sentence)?

What is the company's competitive advantage / moat?

Who are the primary 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?

What should I be wary of with this company?

Does the company have a credit rating of at least BB?

What do I like about this company?

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?

Do I already own companies in this sector?

Does the company treat its employees well?

Are insiders buying or selling shares?

Is the industry and company sustainable?

Is the company's growth slowing?

Are analysts optimistic about the company?

Is the company a value trap?

Is the stock "screaming" cheap?

What is my exit strategy?



Inspired by some of the comments this sub-reddit made last time, you asked me to create an app which calculates everything above for you... so I did.

Check out: Aikido Finance - contains a catalog of long-term & rules-based investment strategies

Enjoy

 

[resjudicata]

@irondad92 Go to the gym, don’t smoke, watch your diet, sleep more, don’t do drugs and don’t over drink. This will give you an extra 10 years or more for compounding.

 

[woot]

@resjudicata go to McDonald's for breakfast 3 times a week

 

[finnpan]

@woot And IV Coca cola into your bloodstream

 

[davidans]

@woot In-n-Out.

 

[pietervh85]

@davidans I'll have a Kona cofee and a double double in the morning, I cant help myself.

 

[awan717]

@woot At least if you're not Dub Buffs

 

[blessingskat]

@awan717 Or a Bills fan

 

[tmaries]

@blessingskat But why? D:

 

[danaport]

@woot And eat a 2 pound tomahawk steak once a week

 

[545454]

@resjudicata I think the science is saying don’t drink at all these days. Alcohol isn’t good for you, especially considering what it does to your gut flora.

 

[proevan]

@545454 Besides very occasional amounts of red wine, has science ever been in favor of drinking alcohol?

While I don't drink, I understand the appeal. There's a fine line between enjoying alcohol and enjoying being drunk. Moderation is key here; don't do the latter if you don't want to harm your body.

 

[tamalyn]

@proevan No scientific evidence behind occasional red wine either...

 

[joelq]

@resjudicata

sleep more

So, I'm going to end up with an extra 10 years of sleep?

 

[vepp]

@resjudicata Genuinely chuckled.

 

[lamporful]

@resjudicata Why would I want to live an extra ten years if I can't have drugs?

 

[robnox]

@resjudicata Does dank count?

 

[anonymouspractioner]

@resjudicata Instructions unclear, did drugs at the gym.

 

[chryssa1791]

@resjudicata Definitely do hallucinogens as they have the potential to expand your reality and make you care more about truly valuable things and less about money...

 

[resjudicata]

@chryssa1791 Like what? Any recommendations?

Money is only a means to other ends. As long as you are living the life you enjoy, you are rich. Maybe i see some moral character in delayed gratification but someone who only invests and never spends is a miser.