Investment Checklist

Looking over the investment decisions I made in the past half year, I become aware that I’ve made a few bad decisions. Overall the result is still profitable because those failures are small positions, but I knew that I have to be honest to myself so that I could learn from that. Those successful decisions are mainly the idea I learned from SeekingAlpha, Xueqiu, or ideas from subscriptions. However, the investment idea that I build from scratch are mostly not successful. I am still far from the skill level I would like to reach. I know I need to put down a checklist into my system so that I could stop myself from tripping on the same mistakes again. Noting them down would also help me to review my thinking at the time.

Overview

  • What does the company do?
  • What products does the company have?
  • Who’s the biggest customer/supplier?
  • Recent events?
  • Where do they operate geographically?

Investment Thesis

  • Is the product durable? Would it exist ten-year later? How much percentage of the R&D cost spent by the sale to make the company competent?
  • What’s the competitors? and what’s the competitive advantage of the company? Where does the moat come from? Location of the real-estate, high-switching cost? patents? contracts? network-effects? shelve-space? brand? economy of scale? regulatory? high barrier of entry? technical skill? reputation? intangible like database, credit records, or sports right?
  • Is it a growth company with good runway, what’s the CAGR? Is it grow by acquisition? If organic growth, break down the source of growth. Is it grow by market share? International expansion? Calculate the upper bound by comparing to other items. Also notes the factor that put the structural upper bound: demographic, population, inflation, nominal GDP.
  • Is it cyclical? What makes you confident that you are on the right trend?
  • Are you betting a turn- around? Or is it a spin-off arbitrage? Or it is a cigar-butt opportunity, be mindful that it might suffer from reflection theory like financial institution.
  • List at least three reasons where you would like to buy the stock. And write the thesis down, so that you could review them afterwards. Whether it turns out to be a good or bad decision later.
  • What’s the short interest ratio? Read short thesis.
  • What does the analysts say on TipRanks? What are the rankings for those analysts?
  • On what conditions you would sell it when you open an position.

Circle of Competence

  • Is the business model complicated and hard to predict?
  • how long have I been watching/working-in the industry? How would I evaluate myself on the familiarity.
  • How confident am I to predict the future 10-year avg EPS?

Risk

  • What kind of scenario would disrupt the business that you are looking at?
  • Is the Reward/Risk ratio large enough?
  • What makes Mr.Market wrong? Is it too early to dive-in right now?
  • What’s its maturity distribution on senior debt if any?
  • Where are we in the economy cycle? What’s the trend of the interest rate? When’s the last bear market? What’s the median PE ratio of the market?
  • Would it suffer from systematic risk or black swan? How much liquidity would it lose in a catastrophic situation?
  • Is its suppliers/buyers too concentrated?

Valuation

  • What’s ROE, ROA, ROC, OCF?
  • What’s the dividend payout record?
  • CAGR in the number of the outstanding stocks?
  • Debt repayment. Debt/EBITDA, Z-Score (for manufacturing industry)?
  • Quality. F-Score, S&P, Moody, Fitch on bonds rating.
  • What’s the acquirer’s multiple? What’s EV/EBITDA, EV/Sales, P/OCF?
  • Is the margin of safety enough when the scenarios you listed happen?

Catalyst

  • Any institutional investors?
  • Is it part of any stock index?
  • Any chance to uplist to a bigger exchange?
  • What’s the history record of stock buyback?
  • Have they ever paid special dividends?
  • Any guru buying?

Management Team

  • Are they aligned with the investors? How much ownership do they own?
  • How does the management team compensated? Look at the proxy statement, is it options, restricted stocks, bonus? what’s the strike price for stock options? How much do they own the stocks, and is that a big part of their compensation?
  • What’s their guidance on the usage of the FCF? And historical record?
  • Any outstanding people on the board?
  • Any insiders buying?
  • What’s their record on acquisition? Are they good investment?
  • What’s the age of the management’s team? (FCAU’s CEO passed away due to disease)
  • If it is a Chinese company. What’s their record before? Have they ever diluted the shares with low issuance? Have they manipulated the account book?
  • If it is listed in HKE, check against if it is in the black list

Appraisal

  • Glassdoor Review of the management’s team
  • Product’s review on the forums. Yelp, Bookings.com, Car forum, TripAdvisor
  • Check on BBB
  • Look for info about the industry group. Timber, Core processors, Oil.
  • Get Satellite image of their HQ on Google Map

Discipline on Trading

  • Don’t check the stock price actively, set up price notification so that it would force you to plan ahead.
  • Limit the max of one position to be 30%
  • Don’t open a new position easily, stay on the sideline most of the time.
  • Does it make sense to use options strategy? If not, does it make sense to use Grid-Trading technique? What would be the opening size? Do I have enough of fund to support that? What would be the selling price?

適合一般人的投資體系(一)

當自己的程度到一定的時候被別人問到該怎麼學習提升自己的時候，經常會回答不出來。主要是知識體系太複雜而且每個人起始點不同，實在是難以回答。就像被問到如何成為一個頂尖的 Developer 的時候，也是十分難回答的。但我覺得有一個共通性就是，不斷閱讀閱讀再閱讀，也許並不是很系統性地閱讀，也許看第一遍的時候看不懂，就再看第二遍第三遍直到看懂。但總之要閱讀大量的文章，並且有體系地去深入自己還不熟悉的部分。

這邊假設讀到這邊的人都已經至少熟讀綠角的部落格的文章了，對於投資 Index Fund 等等都已經很熟悉，而最基本的資產配置概念等等也都了解。但你又不滿足於此，想要更深入了解各種體系。市面上一般書，特別是中文，很多都是只有講到觀念的部分，但操作性不強，從各種金融工具，常見的總經數據，到如何去尋找投資的點子的部分一點都沒有說明。我嘗試從有資產配置概念的難度開始延伸。

最無腦的權益類配置就是買 VTI 之類的以權重型指數基金，然後策略也就是定期去買，或是定期做 Rebalancing。光指數型基金就有兩個面向可以去嘗試改進，第一個是從總經的數據去做 market timing，而並不是用定期投入的方式進行，有了總經數據會比較有根據地猜測現在經濟的週期在什麼階段，當然也不可能猜得百分之百準確，但至少對於風險評估有概念，知道何時該減倉何時該加倉。靠總經數據做長周期波段其實可能是比選股的風險要小不少的，只要不扛槓桿風險都不大。當然玩熟的話加一點槓桿多半都還是會在可控範圍內。

而另一個面向就是調整權重了，最傳統的 Index Fund 就是用市值來做權重。但已經有不少人回測說光是簡單的改進用相同權重就可以對於報酬率改進不少。近年來不少推的 Smart Beta 就是在權重上下手，所以就可以還是維持管理費那麼便宜。可以直接研究各種 Smart Beta 的基金，或是用 Joel Greenblatt 的 Magic Formula 做自己的 Smart Beta，但壞處就是做量化的細節還不少，回測也許報酬不錯但實戰爛得可以。而且對於黑盒子的量化而言，當出問題的時候心理面會比較難以去調適。量化的手段是許多理工科背景的人特別容易掉入的坑，理工科會覺得自己讀過各種數學模型，對數學很有研究，量化才是可靠的方法。但必須要了解量化的確是有幫助但在如今他有他的極限在。市場畢竟不是物理定律，他是像身體數值一樣不斷改變進化的活的東西，只是純粹有數字但卻沒有質化的資訊，很容易陷入曲解事實的情況。像是同樣的 P/E, P/B 在某一個產業低估代表好事，但到另外一個產業性質因為收入有滯後的特性，可能反而代表壞事，不可同一而論。另外做量化，特別又會想要自動化，各種設備跟乾淨的資料源買起來其實也不是那麼便宜。基礎設施的要求並不低。

從 Index Fund 可以繼續延伸，在不同的產業週期可以根據總經去賭不同產業輪動，現在美股都有每個產業本身的 ETF，像是 XLF，XLE，XME 等等。不只是賭某個時間某個產業比較低估之後可能可以均值回歸，你也可以用 Pair Trading 的方式賭價差會縮小。

以上用 ETF 來操作的方式都還算輕鬆，長久對總經有研究加上倉位控制就應該可以比無腦 ETF 要來得效果好些。如果有更多時間要開始研究公司，研究產業。這就是漫漫長路的開始，時間心力要花得更多，但也更加有趣，當然如果做不好風險也會更大，因為是單一個股關係。