Hedge Fund Analyst Checklist

Introduction (via World Beta)

One of the turning points in my early career was taking a security analysis class taught by Tiger Cub John Griffin at UVa.  There are some old posts in the archives on the topic, but needless to say it was a great experience for a bio-engineer and is part of the reason I moved away from the lab bench and towards quant investing (whether that was a net plus or minus to society TBD).

Anyways, I was cleaning out some old files and came across these notes from the class and thought I would repost them as they are a wonderful guide for a young analyst on how to think about investing in stocks.  While the list is a bit dated (from university in 2000) the message is still valid.  Other investors that promote using checklists include Buffett, Munger, and Pabrai (here is Pabrai’s PPT to Columbia on the topic).

Some of my favorite checklist items (via World Beta)

Company/Cultural Issues (VAR)

  • Is this a great company?  Is it built to last?  What could change this assessment?
  • Can you imagine holding stock in this company for twenty years?
  • If you had access to unlimited capital, how would you feel about your chances of successfully competing against this company?
  • Compare to a weak competitor in the same industry.  What is the difference and why?
  • What are its coverage ratios on interest payments?

Financial Measures First Step:  Check against all the accounting shenanigans in Howard Schilit’s book (Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Third Edition) Balance Sheet

  • What is the company’s capital structure, and how does it compare to its peers?
  • What are the trends in inventory turns, days payable/receivable, and working capital?

Click Here To Read: Mebane Faber’s Checklist for Investment Analysts

About Miguel Barbosa

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21. January 2011 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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