“Under conditions of complexity, not only are checklists a help, they are required for success.”Atul Gawande, The Checklist Manifesto
By John Kingham
Unfortunately I’m not Warren Buffett; I don’t have a photographic memory and I can’t do advanced mathematics in my head.
So instead of relying on genius, I rely on a simple set of tools to make sure I a) consistently apply a systematic approach to investing and b) capture any lessons and integrate them into the overall approach.
Here are the three main tools I use to analyse stocks and manage my portfolio:
1. Investment spreadsheet
This is a quick and relatively simple way to see if a company has the main features I’m looking for, as defined by my defensive value investing strategy.
2. Investment checklist
If a company makes it through the initial spreadsheet checks, the next thing I’ll do is make a copy of my Company Review Checklist (Google Doc) and start working through it step by step.
The checklist is designed to help you find out if a company meets these four key criteria:
- Diversity: Is the company a good fit with your existing portfolio?
- Quality: Is this a quality company?
- Defensiveness: Is this a defensive company?
- Value: Is this company good value?
If the company offers an attractive combination of diversity, quality, defensiveness and value, and assuming it’s a good fit with my portfolio, I’ll publish the completed checklist in my monthly investment newsletter and add the company to the portfolio a few days later.
And if I’m looking to sell a company, I’ll work through the same process to make sure it doesn’t have a good combination of quality, defensiveness and value.
3. Defensive value stock screen
There are over 600 companies in the FTSE All-Share, and that’s a lot of companies to have to search through.
To make the task of finding attractive investments easier, I use a stock screen which I’ve developed over many years. It contains about 200 FTSE All-Share companies, all of which paid dividends in every one of the last ten years.
The screen ranks each company by a combination of its growth rate, growth quality, profitability, debt level and valuation ratios, all of which make up the quantitative side of my investment strategy.
The stock screen is available as a PDF and Google Sheet and is available to subscribers of my monthly investment newsletter.