Vishal Khandelwal's (simple) checklist for stock selection

This is in continuation to what I wrote yesterday. This checklist makes stock selection seem easy. But how does one remove bias? How does one bring behavioural changes while investing? This is a wonderful list for beginners or for that matter even seasoned investors (mail received on 13th June 2020).

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For example, this may include asking just these seven questions –

  1. Is the business simple to understand and run? (Complex businesses often face complexities difficult for its managers to get over)
  2. Has the company grown its sales and earnings consistently over the past 5-10 years? (Consistency is more important than speed of growth)
  3. Will the company be around and profitably better in 10 years? (Suggests a long runway of growth and continuity in demand for the company’s products/services)
  4. Does the company have a sustainable competitive advantage? (Pricing power, gross margins, lead over competitors, entry barriers for new players)
  5. Does the company require consistent capex and/or working capital expenditure to grow its business? (Companies that have to spend continuously on such areas, especially capex, are like running on treadmills, which is not a good situation to have)
  6. How good is the management given the hand it has been dealt? (Capital allocation, return on equity, cash generation, debt-paying capacity, corporate governance, performance against competition)
  7. How reasonable is the stock price as compared to the company’s earnings and intrinsic value? (Great business bought at an expensive price is often a disaster too)

Do just this, and you should be fine with your stock investing.

There is no need to rack your brain with 20 pieces of information when now you know that the maximum capacity is just four, or maybe seven. If you are trying to go beyond that, you are just overloading the most important piece of hardware that resides right on top of your eyes that are reading this.

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