The Investment Checklist: The Art of In-Depth Research



"Every wise investor will keep The Investment Checklist next to their financial instrument panel and consult it whenever they make a decision to buy or sell a stock."—Robert P. Miles, author, The Warren Buffett CEO

"Michael Shearn has written an indispensable book. It will raise the game of every investor who reads it. Fortunately, not all of them will." —Judd Kahn, co-author, Competition Demystified and Value Investing: From Graham to Buffett ...

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The Investment Checklist: The Art of In-Depth Research

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"Every wise investor will keep The Investment Checklist next to their financial instrument panel and consult it whenever they make a decision to buy or sell a stock."—Robert P. Miles, author, The Warren Buffett CEO

"Michael Shearn has written an indispensable book. It will raise the game of every investor who reads it. Fortunately, not all of them will." —Judd Kahn, co-author, Competition Demystified and Value Investing: From Graham to Buffett and Beyond

When you base your stock purchase decisions on isolated facts and don't take the time to thoroughly understand the businesses you're buying, costly investment mistakes are usually made. Instead, your investment purchases should be based on understanding the value of a business through in-depth research.

That's why Michael Shearn—founder of Time Value of Money, LP and the Compound Money Fund, LP—has created The Investment Checklist. In it, he shares the successful approach he's used over the past decade to generate and research investment ideas, assess the quality of a business and its management team, and ultimately improve his overall investment performance.

Along the way, you'll be introduced to specific "checklists" that will enhance your ability to understand the dynamics of the business you're interested in and the people operating it, value the potential investment, and make the most informed buy or sell decision possible. Each chapter also contains countless examples that show you exactly how the author's checklist has helped him make the right investment moves over the course of his successful professional career.

Whether you're just starting out and thinking about what you want to invest in, or already have a portfolio that you want to manage more effectively, The Investment Checklist has the tools and insights you need to improve your investment endeavors.

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Product Details

  • ISBN-13: 9780470891858
  • Publisher: Wiley
  • Publication date: 11/8/2011
  • Edition number: 1
  • Pages: 384
  • Sales rank: 306,829
  • Product dimensions: 6.20 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

Michael Shearn founded Time Value of Money, LP, a private investment firm, in 1996, to devote his attention to selecting and researching stocks and private investments. He launched the Compound Money Fund, LP, a concentrated value fund, in 2007. Shearn serves on the Investment Committee of Southwestern University, which oversees the school's $250 million endowment. He is also a member of the Advisory Board for the University of Texas MBA Investment Fund. Shearn graduated magna cum laude from Southwestern University, a small liberal arts college in Georgetown, Texas, with a BA in business, with an emphasis in accounting and finance. He lives with his wife and two daughters in Austin, Texas.

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Table of Contents


Chapter 1: How to Generate Investment Ideas.

How Investing Opportunities Are Created.

How to Filter Your Investment Ideas.

Using a Spreadsheet to Track Potential and Existing Holdings.

Chapter 2: Understanding the Business—The Basics.

1. Do I want to spend a lot of time learning about this business?

2. How would you evaluate this business if you were to become its CEO?

3. Can you describe how the business operates, in your own words?

4. How does the business make money?

5. How has the business evolved over time?

6. In what foreign markets does the business operate, and what are the risks of operating in these countries?

Chapter 3: Understanding the Business—from the Customer Perspective.

7. Who is the core customer of the business?

8. Is the customer base concentrated or diversified?

9. Is it easy or difficult to convince customers to buy the products or services?

10. What is the customer retention rate for the business?

11. What are the signs a business is customer oriented?

12. What pain does the business alleviate for the customer?

13. To what degree is the customer dependent on the products or services from the business?

14. If the business disappeared tomorrow, what impact would this have on the customer base?

Chapter 4: Evaluating the Strengths and Weaknesses of a Business and Industry.

15. Does the business have a sustainable competitive advantage and what is its source?

16. Does the business possess the ability to raise prices without losing customers?

17. Does the business operate in a good or bad industry?

18. How has the industry evolved over time?

19. What is the competitive landscape, and how intense is the competition?

20. What type of relationship does the business have with its suppliers?

Chapter 5: Measuring the Operating and Financial Health of the Business.

21. What are the fundamentals of the business?

22. What are the operating metrics of the business that you need to monitor?

23. What are the key risks the business faces?

24. How does inflation affect the business?

25. Is the business's balance sheet strong or weak?

26. What is the Return on Invested Capital for the Business (ROIC)?

Chapter 6: Evaluating the Distribution of Earnings (Cash Flows).

27. Are the accounting standards that management uses conservative or liberal?

28. Does the business generate revenues that are recurring or from one-off transactions?

29. To what degree is the business cyclical, countercyclical, or recession-resistant?

30. To what degree does operating leverage impact the earnings of the business?

31. How does working capital impact the cash flows of the business?

32. Does the business have high or low capital expenditure requirements?

Chapter 7: Assessing the Quality of Management—Background and Classification: Who Are They?

33. What type of manager is leading the company?

34. What are the effects on the business of bringing in outside management?

35. Is the CEO a “lion” or a “hyena”?

36. How did the manager rise to lead the business?

37. How are senior managers compensated, and how did they gain their ownership interest?

38. Have the managers been buying or selling the stock?

Chapter 8: Assessing the Quality of Management—Competence: How Management Operates the Business.

39. Does the CEO manage the business to benefit all stakeholders?

40. Does the management team improve its operations day-to-day or does it use a strategic plan to conduct its business?

41. Do the CEO and CFO issue guidance regarding earnings?

42. Is the business managed in a centralized or decentralized way?

43. Does management value its employees?

44. Does the management team know how to hire well?

45. Does the management team focus on cutting unnecessary costs?

46. Are the CEO and CFO disciplined in making capital allocation decisions?

47. Do the CEO and CFO buy back stock opportunistically?

Chapter 9: Assessing the Quality of Management—Positive and Negative Traits.

48. Does the CEO love the money or the business?

49. Can you identify a moment of integrity for the manager?

50. Are managers clear and consistent in their communications and actions with stakeholders?

51. Does management think independently and remain unswayed by what others in their industry are doing?

52. Is the CEO self-promoting?

Chapter 10: Evaluating Growth Opportunities.

53. Does the business grow through Mergers and Acquisitions (M&A), or does it grow organically?

54. What is the management team's motivation to grow the business?

55. Has historical growth been profitable and will it continue?

56. What are the future growth prospects for the business?

57. Is the management team growing the business too quickly or at a steady pace?

Chapter 11: Evaluating Mergers & Acquisitions.

58. How does management make M&A decisions?

59. Have past acquisitions been successful?

Appendix A: Building a Human Intelligence Network.

Evaluating Information Sources.

How to Locate Human Sources.

How to Contact Human Sources—and Get the Information You Want.

Create a Database of Your Interviews for Future Reference.

Appendix B: How to Interview the Management Team.

Ask Open-Ended Questions.

Be Aware of the Danger of Face-to-Face Assessments of Managers.

Appendix C: Your Investment Checklist.


About the Author.


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