Charlie Munger in 2007 quoted the importance of an Investment Checklist in Berkshire Hathaways Annual Letter, “I’m a great believer in solving hard problems by using a checklist. You need to get all the likely and unlikely answers before you; otherwise it’s easy to miss something important.”

Therefore, below is my current Investment checklist which, every company or marketable security must be ‘washed through’ before an investment can be made. It is certain that this checklist will be added to as investing mistakes are encountered and lessons are learned from others overtime.

Checklist questions

  1. What does the business sell ? Is it a necessity, unique or a commodity ?
  2. Is it subject to technological obsolescence/Innovation ?
  3. Why do the customers buy the product from the company and not someone else (Price, quality, convenience, subscription, referrals etc.) ?
  4. What demand is the product/service fulfilling ?
  5. Is the product/service a small part of a much larger purchase ?
  6. Is the company’s economics a win-win for all of the eco-system ?
  7. Does the business have some unique aspect that makes it hard for others to compete with it [i.e. network effects, highest profit margins, geographic advantage, scale advantage, low cost producer, strong brand, high switching costs etc.] ?
  8. Does the business operate in a competitive industry (entering or exiting) ?
  9. Does the business have lots of competitors, suppliers and customers, or few ?
  10. Will future technology impact the business in a positive or negative way ?
  11. Will International competition (i.e. China, India) impact the businesses long term performance ?
  12. Can the business put up prices without impacting sales (market power) ?
  13. Does the business have a long runway for sales growth ?
  14. What category of growth is the business in (slow, medium, high) ?
  15. What is the market penetration ?
  16. Is the business facing the law of large numbers ?
  17. Does the business need a lot of capital to grow (capital expenditure and leases) ?
  18. Is the business organically cash generative ?
  19. Does the business have a structural tailwind or headwind (equity/debt levels) ?
  20. Is the business/Indsutry subject to regulatory change ?
  21. Is the business improving or declining ?
  22. How is the business impacted by inflation and interest rates ?
  23. Was the business still profitable during all economic cycles (i.e. Recessions) ?
  24. Could you eliminate the company’s advantage(s) with £ 1 Billion ?

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