What’s My Checklist Before Investing in a Company
This Post is without any edits. I’ve written this in a free manner.
This Post is Heart to heart. So, I have to maintain the originality.
I kept this post – Short, Crisp, and Simple. I hope you enjoy reading.
I deeply admired Charlie Munger and Peter Lynch.
Most of my ideas come from Reading Newspapers and having the curiosity to know.
Before Investing, I use a combination of these checklists. Because every company is different from the other.
All are my random thoughts, ideas, plans, and imagination.
Notes before the start.
I don’t Invest too much, I invest in a few companies, which I love them. And want to hold for a longer period of time.
Strictly follow – the Warren Buffett rule – you have only the 20 tickets rule.
You check this rule in the Charlie Munger Post.
I see Investing activity as ownership.
I don’t like more diversification. It reduces my Investment amount in my favorite companies.
And You’ll notice brackets – are my comments for that particular point.
So, Let’s start the reading.
Only Choose the perfect company.
Circle of competence: (Very Important Point. I don’t usually invest out of my circle. How to increase the circle through continuous reading)
Company Operation (must be Simple, Easy, and Understandable.)
Reading Annual reports and (D)RHP: (More insights, more success.)
Insight from newspapers – You will get to know about various things on various topics.
Consider these factors
Requirement from Investors
Tips
Continues reading
Improve your accounting skills
Think more in a non-business way.
Waiting is far more important than timing.
Remember How Compounding Interest works.
Developing critical thinking has its own benefits.
Avoid people’s hot tips it may damage your money.
Perfect company features
Also, think like an owner what are the steps you would have taken, if you were the management. & How to decrease the competition.
Promters’ Pledging (Important Point, Low or No Pledging Prefer.)
Most important check – (Company’s operations are ethical in nature)
Environment – (How a company is supporting mother nature. Because it is important from everyone’s POV.)
Social – (How a company is having relations with its employees and customers)
If accessible you can talk to employees if you visit the stores. (This is Peter Lynch’s Tip)
Strong Economic Moat – (Because to stop the competition, Note: it has to be Strong in nature. more read here –Economic moats)
You know very well about that particular company. (Both Internally and externally). Test yourself by asking questions. if your answers satisfy you. then you can go ahead.
Management: Management mindset & goal-oriented, Are people are ethical in practice. Do they charge a high salary? Their views about the past, present, and future.
If Management is heavily invested, then it is a positive point.
If there is no Vision & Mission, then leave the company.
While reading & thinking, if you are able to make a story about the journey from the start till now, then it is a good sign. And if the story is not perfect, then leave the company.
I do check if any big names like Tata, Adani, Bajaj, RPSG, Ambani, etc have invested. Again a + point. But it is not necessary. because usually, mindsets are different.
CSR has a role to play. Don’t neglect it.
Sales are increasing.
Profits are increasing.
Economics moats are increasing. (then invest more)
Consistent profits in the past. (A rare sign though also it is not mandatory. because it is impossible to achieve. remember COVID-19.)
Large Distribution networks (like – ITC, HUL, coca-cola have, Adani Trans have)
No or few competitors (the less it is, the better)
Check Competitors’ annual reports. (you’ll get to know various important things.)
buy at intrinsic value (Wait for the correction.)
Only sell when economic moats are weakening. (my personal choice)
Company’s Products have huge buyers (so, the company won’t be too much dependent.)
Company Products fulfill peoples’ regular wants. (like FMCG, Jio recharge, Petrol. it’s a Plus Sign)
Company opens new stores on a Quarterly basis. (It shows confidence, growth, and prosperity)
Key people of the company are heavy investors in it. (CEO, CFO, Company Secretary, etc)
Buy-Back of shares too often.
Brands are widely recognized. (It helps in sales)
Sound balance sheet (not necessary because if this is the criterion then Investing would be a cakewalk.)
Good cash deposits (show backup)
Low long-term debts (Inverse relationship – less debt, more profit)
Able to generate cash from operating activities (I would say, bare minimum)
No Foreign Investors, No Mutual fund companies, no Govt. companies are the shareholder – It has more chances of success because when big investors come, it increases the share price.
The company’s vision & mission is achievable.
Promoters’ holding is increasing y-o-y. (+ sign)
Simpler is the business Better it is.
The user of technology not the maker of technology. (you know the why. Cheer up yourself)
Location importance in Hotel Industry. (IHCL has it. you can study – IHCL)
Technology (Less involvement prefer.)
Environmental concern (V.I.P.)
How raw material is obtained. (Prefer an easy way)
Economic moat (you should know the difference between strong and weak)
Circle of competence (strict to it.)
Ethics (V.I.P.)
Patience
More Patience
Maximum Patience
The End.
Thanks for reading What’s My Checklist Before Investing in a Company.
This Post has a continual nature,
so I’ll be updating it from time to time to add more information. So keep coming to read.
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