Wednesday, September 22, 2010

Investing Checklist

Like many people out there, investing is something I do on the side - I have a full time job, a rental property, and a 9 month old baby girl - so you could say my goal of outperforming the S&P is a bit audacious given that the vast majority of my time is spent on non-investing activities.

However, by using an investment checklist I save a ton of time. Basically, it enables me to pass on the majority of investments without doing any heavy lifting, and I can dedicate serious time to only what I perceive are the best opportunities. Anyway, here's the checklist:
  1. Insider buying ( or insider ownership (
  2. Near 52-week low
  3. Significant discount to Morningstar's fair value estimate (yes, I subscribe to Morningstar)
  4. "Guru" buying (
  5. For options only: high degree of leverage
  6. Significant discount to my fair value estimate
  7. Downside protection - i.e. low risk / high uncertainty profile
  8. Asymmetric payoff
Items 1 to 5 can be done in less than 5 minutes, and based on the results I either pass on the investment or start working on 6 to 8, which take quite a bit of time. The nice thing about having a checklist is it really narrows my universe of possible investments - at any given time there are usually less than 10 stocks that meet enough of the criteria to be considered (right now there's less than 5) - and with so few stocks to pick from investing becomes a much simpler process.