Investment Checklist - Part2

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In my previous post on Checklists here, I provided an overview on the checklists and the benefits of using them.  In this part, I have listed the checklists I follow while analyzing a security for potential investment.  As I mentioned, every investor may have a long or small checklist based on their need and its more of an individual preference.  Indian companies are notorious for corporate governance and one needs to be very diligent in their evaluation exercise.  As I mentioned before, it is the safety of the investment and its downside  that is more important than the upside.  Our idea is to reduce the errors of commission than committing errors of omission.

Investment Checklist - Part 1

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Checklists are basically tasks/checks that are jotted down in orderly way to make sure that all the items mentioned have been done or covered.  Checklists are used for managing very complex systems or procedures where things are not left to the memory of the person that is executing the task or following the procedure.  Checklists are very commonly used by pilots while flying aircraft and now checklists are slowly being used by health care industry as well during surgical procedures as well as in ICUs.  Checklists have not only helped in saving many human lives but also has helped in cutting down cost and improving quality.  

Open Ended Questions to Management

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While reading the Investment Checklist written by Michael Shearn,  I came across an interesting list of open ended questions that can be asked to the management of a business. He recommends asking open ended questions to the management than asking close ended ones as open ended ones tend to give more insight about how the manager takes decisions.  Also he recommends that hypothetical questions should be avoided as they do not guarantee how the manager will actually act when such situation come.  

Useful Links for Business Analysis

I found this useful link from investopedia to understand some the industries and their metrics.

http://www.investopedia.com/features/industryhandbook/

Key Metrics on 25 Industries by Forbes

This is a very useful slide presentation provided by Forbes on metrics on 25 industries.  While this may not list all the metrics, they could be useful to analyze where the company you analyze stands with respect to the industry.

http://www.forbes.com/2010/06/29/best-in-class-financial-metrics-entrepreneurs-finance-sageworks_slide.html