Investor’s Ultimate Checklists

Every investor has their own style of investing, whether is contrarian, value investor, etc.. I believe it is important to learn from the masters in order to form our own strategy. This article will provide you insight on the tests a stock has to pass before these gurus will buy it.

Contrarian Value Approach:

A contrarian investor will try to profit from investments that defy conventional wisdom. In other words he tries to go the opposite way of where the crowd is going. A contrarian investor believes crowd movements tend to drop stocks price, therefore creating an opportunity to profit by buying when everybody else is selling, and vice versa. John Neff: John Neff was the portfolio manager of Vanguard Windsor Fund from 1964 until his retirement in 1995. John Neff became an extraordinary contrarian investor and therefore his investment strategies are unique. Neff’s strategy consisted in finding low P/E ratio stocks and companies with strong earnings growth forecasts, solid free cash flow (FCF), and good operating margin relative to the industry. John Neff’s Checklist:

John Neff's Investment strategy Mark when test is passed
P/E ratio is less than the industry average
The percentage growth in EPS is between 2.7% and 20%
PEG (price-to-earnings-to-growth) ratio is less than 1.
Sales have been growing for each of the past 5 years(3 years if no other data)
Operating profit margin in current year is greater than previous year.
Free cash flow has been growing for each of the past 3 fiscal years.
Operating profit margin in current year is greater than industry average.

Buy & Hold Strategy

Warren Buffet is widely known for using this strategy “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

Warren Buffet’s strategy focuses on finding companies that are selling below their intrinsic values. This value is dependent on conditions such as estimates of Futures Cash Flows (FCF), P/E ratios below other comparable firms, high amount of free cash flow to equity, and high book-to-market value.

Buffet buys STRONG fundamentals

Buffet's Checklist:

BUFFET'S INVESTMENT STRATEGY MARK WHEN TEST IS PASSED
Market cap in in the top 30% of NYSE, AMEX, NASDAQ stocks
ROE (Return on Equity) is greater than 15% for each of the past 3 years.
Free Cash Flow (FCF) per share is in top 30% of all stocks in the report.
Net Profit Margin is greater than the industry average.
Forecasted Cash Flow per Share in 5 years is greater than current share price.
Growth rate in market value is greater than growth rate in book value.

You can download the Investor's checklist in PDF version for FREE. Print them out, share them to help you with your investments.

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Growth Strategy

A growth investor seeks to profit from young companies who are in early stages of development. Growth investors also seek a strong record of growth and price strength.

William O'Neil was recognized as one of the greatest Growth investors of our time. He is famous for his C.A.N.S.L.I.M. investment strategy.

Read Also: Stock Market Gurus 

O'Neil's Checklist:

O'NEIL'S INVESTMENT STRATEGY MARK WHEN TEST IS PASSED
Earnings growth for the latest quarter is greater than or equal to 20% when compared to the same quarter last year.
Earnings growth for the latest quarter when compared to the same quarter las year is greater than earnings growth for the pervious quarter when compared to the same quarter las year.
Earnings for the two most recent quarters are positive.
Earnings for this year are more than those for the previous year.
Earnings for the past 4 years (3 yrs if 4 years of data is not available) are continually increasing.
Earnings growth over the last 5 years (3 yrs if 5 not available) is at least 25%.
The current stock price is within 10% of its 52-week high.
The stock’s float (freely tradable shares in the hands of the public) are least than 20 million shares.
Relative strength (52 weeks) is in the top 30% of the database.
There are at least 5 institutional shareholders.

Value Investing Approach

Value investing consists of finding "hidden gems" in the stock market, this means finding companies selling at a cheap value. Value investing focuses on buying companies selling below their intrinsic value.

Bill Miller:

Bill Miller is the portfolio manager for the Legg Masson Value trust, as a value investor he has demonstrated to beat the S&P 500 for 15 years between 1991 and 2005. Bill miller’s approach to value investing differs to Buffett’s where he diversifies his portfolio buying high P/E, low P/E, high price-to-book, and low price-to-book stocks, as opposed to Buffett’s approach.

Miller's Checklist:

Miller's Investment Strategy Mark If Test Is Passed
Ratio of market cap to free cash flow is less than 3.
Current year free cash flow is greater than previous year cash flow.
PEG (price-to-earnings-to-growth) ratio is less than 1.5.
Gross profit margin is greater than the industry average.
ROE (Return to Equity) is greater than the Industry Average.
Sales have been growing for each of the last 5 years (3 yrs if 5 not available).
Ratio of long term debt to equity is less than the industry average.
The market cap is in the top 75% of NYSE, AMEX, and NASDAQ listed equities.

You can download the Investor's checklist in PDF version for FREE. Print them out, share them to help you with your investments.

downloadpdfic

Read Also: Warren Buffet's Oil Man Joke

Francisco

Frank is the Founder of Wall Street College and a dedicated stock investor. Having an enormous passion for Investing, Stocks, and Success, Frank decided to start WallStCollege.com with the purpose of educating people on how to put their money to work, teach them how to invest in stocks, and how to always strive for Financial Freedom.

4 Comments

Xavier · 27 June, 2013 at 5:59 PM

Interesting checklist Frank, I would’ve loved to see a “buy/sell signal” when a stock reaches a certain number checkmarks, (maybe assigning different weights to each item on the list?) successfully coming up with a nice stock screener.

    Frank Alvarez · 27 June, 2013 at 6:22 PM

    Thank you for bringing that out Xavier.

    Usually I set my own “buy/sell signals”, but I would say I’m more inclined to Bill Miller’s approach, mainly because I consider myself a value investor.

    I wouldn’t buy any stock without first passing at least 80% of the checklist criteria. The checklist mainly just proves the financial strength of the company against its peer.

    Thank you for your input, hope to hear more from you.

    Frank Alvarez · 27 June, 2013 at 6:28 PM

    Thank you for bringing that out Xavier.

    Usually I set my own “buy/sell signals”, but I would say I’m more inclined to Bill Miller’s approach, mainly because I consider myself a value investor.

    I wouldn’t buy any stock without first passing at least 80% of the checklist criteria. The checklist mainly just proves the financial strength of the company against its peer.

    Thank you for your input, hope to hear more from you.

john soon · 17 August, 2014 at 1:50 PM

Fascinating checklist Honest, My spouse and i would’ve adored to find out some sort of “buy/sell signal” each time a stock options grows to some range checkmarks, (maybe setting unique loads in order to each object on the list? ) productively discovering a pleasant stock options screener.
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