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Investing Process



February 15, 2012 – Comments (4)


In my last blog post, A Value Investor's Mea Culpa, I highlighted some of the mistakes I have made in investing lately. Most of them have involved a lack of an "investing process." Because of this, I decided I needed to impose some own rules on myself to keep me accountable and thinking clearly.

 Before any investment decision, I will require that I do the following as a bare minimum:

 1) Have at least a short summary of the thesis on this blog/ in CAPS. This will force me to write my thoughts down, hopefully slow down my process, and also allow me to get alternative views from the Foolish community

2) Include in that thesis the following: current price, worst-case downside scenario, and price target (ideally a base case and optimistic case). In this way, I will force myself to summarize at what price I like a stock, really like a stock, and think it is a sell.

3) The market view, my variant view, and why I think this opportunity exists (why I think I am right)

4) A short summary of the bearish thesis-- this is something I often overlook. It is easy to think about the upside in an investment, but when you slow down and write down a well-reasoned bearish case, it might make you consider some things you may have missed previously.

5) Conclusion on buy/sell/ pass

6)  If buy, sell, or short, what is the proper and prudent allocation? Is it something you want to be aggressive with, or keep as a small % of portfolio. How does it fit into my broader portfolio?

These are the things I am going to require of myself. Anyone else have any feedback on things I might be missing or things that you find helpful?




4 Comments – Post Your Own

#1) On February 16, 2012 at 11:50 AM, dragonLZ (86.52) wrote:

7) Say a prayer once you decide to buy  :)

Good Luck, Connor.

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#2) On February 16, 2012 at 12:14 PM, Momentum21 (97.45) wrote:

As a value investor you have to give time for your thesis to play out. Sometimes the broader market will derail everything or conversely make you appear like a genious for no good reason. 

I don't get why you look at one quarter of underperformance as a setback. You don't have to answer to clients...don't be a wuss man... : ) 

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#3) On February 16, 2012 at 12:46 PM, portefeuille (98.93) wrote:

 ... and do not forget to follow the line.


S&P 500 index.


(from here)

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#4) On February 16, 2012 at 1:06 PM, XMFRosetint (46.62) wrote:

 Hi Connor,

That's a great idea. I think everyone should have a process that they use before they buy shares of a company. I'm looking forward to reading your first post.



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