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Sunday, February 05, 2006


10-K and proxy
  1. Period covered for 10-K
  2. When was 10-K filed?
  3. Where are they incorporated?
  4. Location of headquarters
  5. People check (executives and directors)
  6. Customer concentration
  7. Supplier concentration
  8. Legal proceedings
  9. Acquisition check
  10. Employee details (including unions)
  11. Related party check
  12. Allowances and writeoffs
  13. Depreciation schedules
  14. Interest rate sensitivity
  15. Seaonality
  16. Inventory accounting
  17. Significant land owned
  18. Hazzardous chemicals?
  19. Asbestos?
  20. NOLs etc.
  21. Any expected tax rate change?
  22. Capital lease obligations
  23. Credit facility: limit, expiration, amount drawn, interest rate, covenants
  24. Other loan interest rates, terms
  25. Derivatives
  26. Stock options and warrants issued
  27. Capital structure check
  28. Auditor check
  29. Changes in auditor
  30. Audit text check from prior year
  31. Major shareholders
  32. Operational leverage
  33. Return on assets
  34. Age of oldest board member
  35. Which board members are serious stakeholders?
  36. Audit committee check
  37. Director attendance record
  38. Compensation check
  39. Audit fee
  40. Any other services by the same firm?


  1. Top competitor
  2. Competitor check
  3. Margins of top competitor
  4. Customer check
  5. Website check
  6. Vulnerability to comodity price changes
  7. Vulnerability to property rights issues
  8. Red flag analysis
  9. Moat analysis
  10. What is the company's biggest weakness?
  11. Could this business be twice as large?
  12. Could this business be 5x as large?
  13. Where are they in the food chain?
  14. Impact of long term trends
  15. Google check
  16. Usenet check
  17. Technorati check


I'll be frank, reading your blog on a daily basis is the most psychologically inspiring as well as intimidating thing you can do to yourself.

It's insane the thoroughness and depth you go to to look through your investments, and I mean this in a very very good way. On the other hand, it puts me in a situation where I have to consider how much due diligience I'm doing (and I certainly see the need to do this), and frankly it's laughable in comparison.

This was just a knee-jerk comment to a particular post. But I want to thank you again for your posts and for sharing your work and thoughts with us - they are inspiring and I hope there will be a time when I can return the favor. I'm sure I speak for many others in this regard.

The funny thing is that I know of other people who are actually significantly more dilligent than I am.

In the book on the game of Go called "Lessons in the Fundamentals of Go", the author starts out on a fairly mundane and time consuming part of the game where moves are very predictable, and in order to know whether to proceed on a certain path, you must look ahead as many as 30 moves (all totally predictable). Students of the game complain about doing it, but the author says he likes to grab them by the scruff of the neck and tell them they can do it, it's not that difficult.

Doing the stuff I do isn't as difficult as it may seem. In fact, I'm always afraid that by publishing this stuff, others will see that it's not so difficult and just do the same thing. I didn't publish the checklist until now because after publishing it, what else do I have left? Not much.

But I believe it's important to identify where to focus your efforts, instead of trying to do everything. When I was looking at SUWN, I realized that a lot of weight was being placed on the auditors and their credibility, so I put a lot of focus on the auditors. I'll probably continue to look more closely at auditors in the future because of it.

The amount of extra benefit you get from doing that much more dilligence isn't clear. When Buffett went to pick Korean stocks, it doesn't sound like he did much dilligence and he made up for it by picking a fairly large number of stocks. He was able to do that, no doubt, because those stocks were so cheap, he could be wrong on a few of them and still make lots of money.

I've also noticed that the more companies I look at, the easier it is to see the problems they have.

What's probably more important than the depth of work I do on companies is the number of different companies I've looked at. If you think about it, the best you can do is to pick the best stocks among the set you've chosen to view. More stocks means more chances of finding something you can understand which is also a good investment.

But I'd say the most important thing to keep in mind is that there are a lot of totally different ways of making money in the market. It isn't necessary to do what I do, although you could do what I do without any trouble.
Well, I'll start my saying you're way too modest and leave it at that.

I think the methods and the avenues you've chosen appeals to a certain sort of personality. I hope this doesn't offend you, but the ones who would rather make money on Taser are probably the ones watching Mad Money. I read your blogs because I learn more than anything else. Your posts are long, detailed and full of experience.

I believe you are right - that things often aren't as difficult as they might seem and that anecdote about that author is a good one. My experience is that people are increasingly looking for the pot of gold at the end of the rainbow, I think you and many of your readers have fun checking out the rainbow along the way.

You should check out WHI, a puerto rican bank that is selling way below tangible book value because of one bad and embarassing loan to a crooked conman.

There is quite a lot of DD posted on yahoo board, much of it by me. It seems like a stock you might like.
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