The Smart Investor
    Facebook Instagram
    Monday, May 29
    Facebook Instagram LinkedIn
    The Smart Investor
    • Home
    • About
      • About Us
      • Careers
    • Smart Investing
      • Getting Started
      • Investing Strategy
      • Smart Analysis
      • Smart Reads
    • Special Free Reports!
    • As Featured on BT
    • Our Services
      • Our Services
      • Subscribe now!
    • Login
    • Cart
    The Smart Investor
    Home»Smart Analysis»6 Things to Check Before You Buy a Stock: Part 1
    Smart Analysis

    6 Things to Check Before You Buy a Stock: Part 1

    A new series that looks at questions you should ask when doing a deep-dive analysis into a potential investment.
    Royston YangBy Royston YangSeptember 1, 20224 Mins Read
    Facebook Twitter LinkedIn Email WhatsApp
    Chinese Guy Thinking
    Share
    Facebook Twitter LinkedIn Email WhatsApp

    Among the many investment books I read, only a few have inspired me enough for me to write about them in detail. 

    One of these books is “The Investment Checklist” by author Michael Shearn. 

    He serves on the investment committee of Southwestern University, which oversees the school’s endowment fund, and also is a member of the Advisory Board for the University of Texas MBA Investment Fund. 

    As of 30 June 2021, Southwestern University held US$355.4 million of investments.

    Here is a list comprising the main questions in his comprehensive investment checklist.

    I will provide a brief explanation for each point but you are encouraged to purchase his book for more details. 

    The first segment of the checklist covers the basics of understanding the business you are looking into.

    1. Do I want to spend a lot of time learning about this business?

    If the business shows good promise and is easy to understand, it may be worth the investor’s time to dig deeper.

    This is a high-level filter that forces you to ask if a business may be too complex or opaque.

    If that’s the case, then it may be better to give it a pass.

    2. How would you evaluate this business if you were to become its CEO?

    This question relates to the investor pretending to take on the role of the CEO of the business that is being researched. 

    Imagine you need to take over the running of the business and look through all its aspects.

    Which areas will you look into and how deep will you go towards understanding the business to satisfy yourself that you are sufficiently knowledgeable about it?

    3. Can you describe how the business operates in your own words?

    If the business cannot be described in simple terms, this implies that it may be too complex to understand easily.

    It may also be dealing with products which are too technical for the layman to comprehend.

    4. How does the business make money?

    A seemingly basic question, but a necessary one to answer convincingly. 

    Some businesses go through a complex web of transactions to earn their money.

    Or, it may not be readily apparent to the investor how exactly the company makes money.

    If you are ever in doubt as to how a company generates its profits, it’s best to walk away.

    5. How has the business evolved?

    A business which stays static is doomed to fail.

    The business and macroeconomic environment are dynamic and continuously evolving. 

    An investor should learn how a business has evolved over the years to respond to new trends or challenges, and whether it has been successful in doing so.

    6. In what foreign markets does the business operate, and what are the risks of operating in these countries?

    The company may have exposure to countries that may have unique legal, regulatory, political or operating risks. 

    You should have an idea of the regions of the world that your portfolio is exposed to.

    Furthermore, you should go one step further to assess the risks in each jurisdiction where the company earns a significant portion of its revenue.

    The next part of this series will look into the customer perspective for the business and the questions relating to that perspective.

    First-time investors: We’ve finally released our beginner’s guide to investing. Read it in an afternoon, follow the principles, pick an investing style and buy your first SGX stocks within the next few hours! Click here to download it for free.

    Follow us on Facebook and Telegram for the latest investing news and analyses!

    Disclaimer: Royston Yang does not own any of the companies mentioned.

    Yahoo
    Share. Facebook Twitter LinkedIn Email WhatsApp

    Related Posts

    Technology Graphic

    What American Technology Companies Are Thinking About AI

    May 29, 2023
    Comfort Taxi

    ComfortDelGro’s Share Price is Hitting a 52-Week Low: Can the Land Transport Giant Find its Mojo?

    May 29, 2023
    Real Hand Touching Digital Hand

    Get Smart: The Next Stage of the War for AI Dominance

    May 28, 2023
    Facebook Instagram LinkedIn Telegram
    • Careers
    • Disclaimer & Privacy Policy
    • Subscription Terms of Service
    © 2023 The Smart Investor. All Rights Reserved. The Smart Investor, thesmartinvestor.com.sg, an investment education website managed by The Investing Hustle Pte Ltd (Company Reg No. 201933459Z) is not licensed or otherwise regulated by the Monetary Authority of Singapore, and in particular, is not licensed or regulated to carry on business in providing any financial advisory service. Accordingly, any information provided on this site is meant purely for informational and investor educational purposes and should not be relied upon as financial advice. No information is presented with the intention to induce any reader to buy, sell, or hold a particular investment product or class of investment products. Rather, the information is presented for the purpose and intentions of educating readers on matters relating to financial literacy and investor education. Accordingly, any statement of opinion on this site is wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader. The Smart Investor does not recommend any particular course of action in relation to any investment product or class of investment products. Readers are encouraged to exercise their own judgment and have regard to their own personal needs and circumstances before making any investment decision, and not rely on any statement of opinion that may be found on this site.

    Type above and press Enter to search. Press Esc to cancel.