Investment Checklist

1) Can this business be decimated by low cost competition, say from China?
2) Is this a win-win for the entire ecosystem? (Tobacco, WRLD)
3) Are the revenues and cash flows of the business sustainable or overstated / undervalued due to
boom or bust conditions?
a. Are there temporary tailwinds enhancing FCF?
4) Is the company a graham net-net, or priced below net working capital?
a. wurk|ng cap|ta| = current axxetx current ||ah|||tex
b. Anything below 1 indicates negative W/C, while anything over 2 means that the
company is not investing excess assets.
5) Does this company have strong downside protection Margin of Safety?
6) Does the company have a strong earnings engine and moat?
7) Does this company diversify my portfolio or concentrate it in a specific checklist item? E.g.
Leverage
8) Does it have a moat (quantitative)?
a. Is ROIC high?
b. Does the company have steady and predictable free cash flows?
c. Does the company have a stable market share %?
9) What gives the company a moat (Qualitative)?
10) http://davidparmenter.com/files/buffet-checklist-v4.pdf

Business tenets
1.
Is the business understandable?
2.
Do you know how the money is made?
3.
Does the business have a consistent operating histo
4.
Does the company have favourable long term prospect
s?
5.
Is there a big moat around the business (a high thr
eshold
of entry) ?
6.
Is it a business that even a dummy could make money
in?
7.
Can current operations be maintained without too mu
ch
needing to be spent?
8.
Is the company free to adjust prices to inflation?
9.
Have you read the annual reports of the main compet
itors?
Prepared by David Parmenter parmenter@waymark.co.n
Management tenets
10.Has the management demonstrated a high degree of
integrity (honesty)?
11.Has the management demonstrated a high degree of
intelligence?
12.Has the management demonstrated a high degree of
energy?
13.Is management rational?
14.Is management candid with shareholders (evidence
in the
past of open disclosure to the shareholders when th
ere
have been problems)?
15.Has management resisted the temptation to grow q
uickly
by merger?
16.Has management the strength not to follow the
institutional imperatives ( avoid following current
business
and sector fads)?
17.Has the business been free of a major merger in
the last 3
years ( many merger failures come out of the woodwo
rk
within this period) ?
18.Are stock options tied to SMT performance rather
organisations performance (if your team wins you d
o not
pay a .35 hitter the same as a .15 hitter.) ?
19.Are stock options treated as an expense?
Financial tenets
20.Is the return on equity adequate?
21.Is the company conservatively financed?
22.Has the company had a track record of earnings g
rowth in
most years above the stock market average?
23.Are the profit margins attractive (better than i
ndustry)?
24.Has the company created at least one dollar of m
arket
value for every dollar of earnings retained?
Value tenets
25.Is the value of discounted earnings greater than
the
current market value?
26.Have you discounted at a rate equal or greater t
han the 10
year bond rate (risk free rate) ?
27.Have cash flows been based on net income, plus