Thread by @BrianFeroldi

1/ Part 2 - Is this company high quality?

Take score from part 1:

https://twitter.com/BrianFeroldi/status/1324324314053791744?s=20

Then we subtract scores for big risks in the 'gauntlet'

Max gauntlet score -54

Here's the step-by-step process

👇👇👇👇👇👇👇👇👇👇

2/ Gauntlet

Accounting Irregularities

-10

(maybe it should be -50)

3/ Gauntlet

Customer concentration

(pull up annual report and search "concentration")

-5: >20% of revenue from 1/few customers

-3: >10% of revenue from 1/few customers

0: No customers >10% of revenue

4/ Gauntlet

Industry Disruption

-5: Actively being disrupted (autos, fossil fuels, meat)

-3: Possible disruption ($MA & $V w/ Crypto)

0: No disruption risk that I can see

5/ Gauntlet

Outside forces determine success

Ex: banks & interest rates, oil companies & oil prices, gold producer & gold price, cyclical & strong economy, heavy debt & credit markets...etc

-5: Outside forces matter a lot

-3: Outside forces matter a little

0: No problem

6/ Gauntlet

Big market loser

"winners keep on winning, losers keep on losing"

-5: >100% loss to S&P 500 since IPO

-3: >50% loss to S&P 500 since IPO

0: Tie/beat S&P 500 since IPO

7/ Gauntlet

Binary event ahead

-5: Legal battle, FDA approval, patent challenge...etc

0: No binary event

8/ Gauntlet

Extreme dilution from stock-based comp

-4: >5% annual dilution

-2: 2% to 4% annual dilution

0: <2% annual dilution

9/ Gauntlet

Growth by acquisition

-4: Major part of the growth plan

-2: Minor part of the growth plan

0: No acquisitions

10/ Gauntlet

Complicated financials

-3: Makes my head spin (solar city!)

0: Easy to understand

11/ Gauntlet

Anti-trust concerns

-3: $FB, $MA, $V, $AMZN, $AAPL, $MSFT, $GOOG...etc

0: No concern

12/ Gauntlet

Headquarter risk:

-3: High-risk country (China, Latin America)

-2: Medium-risk country

0: Low-risk country (U.S. / U.K. / Switz)

13/ Gauntlet

Currency Risk

-2: >75% of sales non-USD

-1: >50% of sales non-USD

0: >50% of sales USD

14/Final score!

Take result from part 1

Subtract result from part 2

Resulting score:
80+: Why don't I own it?
70-79: Investable
60-69: Close, watchlist, occasionally buy
<60: Why bother?

15/ Common question:

Why no valuation/growth rates?

This checklist is about BUSINESS QUALITY, not "is it a buy now?"

My buys are always based on the best combo of quality/growth/valuation at any given time

16/ Links:

Public version of checklist:

docs.google.com/spreadsheets/d…

17/

Friendly criticism is welcome!

This checklist gets STRONGER over time by peer review!