Bruce Berkowitz adheres to this investing checklist. I like point one. It relates to self-induced Black Swan events.
1. Can you kill the investment? Is there adult supervision at the company?
2. Is the company essential? Does it depend upon the kindness of strangers?
3. What can the company make? Reasonable profitability for owners?
4. How are owners paid? Distributions?
5. Management – honest in past and present?
6. Does accounting reflect reality?
7. Does the balance sheet match up with the income statement?
8. Catalysts – Buybacks? Misunderstood? Is enterprise having a big problem that is fixable? Everyone’s been burned by the stock so afraid to buy it.
9. Are there irrational fears of current headwinds?
10. Does the business have pricing power or unit growth?
11. Can you hold the investment for a long time & does it improve portfolio performance?
George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti