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Business Valuation

Fundamental investing checklist

tip

Invest in systems with antifragile defenses

Value​

Things to learn as an investor

  1. Buy into good businesses
  2. Follow a process, verify Sources
  3. Reinvest your dividends
  4. Watch out for fees
  5. Have a backup plan

Psychology​

Understand human nature

  • Delay gratification
  • Time beats timing
  • Avoid excessive risk

Risk​

Risk analysis

ESG​

Blackrock ESG Integration

Enviromental​

  • Climate risks
  • Natural resources scarcity
  • Pollution and waste

Social​

  • Labor issues
  • Product liability
  • Data security risks
  • Stakeholder opposition

Governance​

  • Corporate governance
  • Board equality
  • Board effectiveness

Investment checklist.

General​

  • Brand: Does the company's business rely on recognizable branding truly valued by its buyer base?
  • Diversification: Has the company diversified its buyer base so that no single customer accounts for more than 20% of revenue?
  • Raving fans: Does the company, on the whole, receive positive word of mouth from its customers?

Financials​

  • Cash flow: Was the company cash flow-positive during the previous quarter and past 12 months?
  • Profitability: Was the company profitable during the previous quarter and past 12 months?
  • Independence: Can the company operate its business in the next three years without relying on external funding?
  • Disclosure: Does the company maintain a high standard of disclosure, consistent with SEC guidelines?
  • Transparency: Would an intermediate investor find the company's financial statements and management ownership disclosures relatively easy to sift through and understand?
  • Well-managed: Did the company report a return on equity of 15% or higher over the previous year?

Market​

  • Growth: Did the company increase its sales by 10% to 40% annually in the previous three years?
  • Underdog: Is the company free of any direct competitors that have substantially greater financial resources?
  • Goliath: Is the company free of any disruptive upstarts visibly challenging its business model?
  • Moat: Would potential new competitors face high economic, technological, or regulatory barriers to entry?

Metrics​

  • Market cap: Does the stock have a market cap of more than $500 million?
  • Beta: Is this stock's beta less than 1.3 for the past 12 months?
  • P/E ratio: Does the stock have a positive price-to-earnings multiple that is less than 30?

Management​

  • Soul: Does this company have soul?
  • Founder: Do founders still have at least a 5% stake in the company?
  • Experience: Do the top three officers have more than 15 years of combined leadership at the company?
  • Binary destiny: Are the company's future business prospects easily able to withstand the binary outcomes that go against it?

Finality​

  • Trust: Is this company guaranteed to be fault-free and fraud-free in all its corporate statements and deeds? 22. You: Do you want to know more about this company? Are you willing to dig deeper, learn more, and ask questions on the boards in order to actively understand this company? 23. Company-specific No. 1: Ask and answer the most insightful question you can come up with to assess this company's risk. 24. Company-specific No. 2: Ask and answer the second-most insightful question you can come up with to assess this company's risk. 25. Bulletproof: Are you certain this company is invulnerable to external world or macroeconomic events such that you're sure you can get all your capital back?
  • Timing: What is the chance that your investment outcome will be a substantial loss of potential energy?

Schema​