Thread by @enriqueabeyta

As promised, here is Part TWO of the "Investment Framework" for legendary hedge fund TIGER Management. This 1st two parts refer to LONG investments. The next 2 days will post the framework for SHORTS. This is STILL a great checklist for today! Check it out. 👇👇👇

Financial Measures First Step: Check against all the accounting shenanigans in Howard Schilit’s book (Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Third Edition, amazon.com/Financial-Shen…

Balance Sheet
■What is the company’s capital structure, and how does it compare to its peers?
■What are the trends in inventory turns, days payable/receivable, and working capital?
■What are its coverage ratios on interest payments?

Cash Flow
■What are the company’s capital requirements and cash flow characteristics?
■How is the company choosing to invest its capital? CapEx? Buybacks? Acquisitions?
■Does the company need to access the capital markets? How soon/often?

Earnings/Profitability
■Regarding the company’s sales model, how visible are earnings quarter-to-quarter, and year-to-year?
■Is this a fixed or variable cost business? How much cost leverage?

■Do earnings grow as a function of unit sales growth, price increases, or margin improvement? How sustainable is this growth?

Valuation
■Looking forward, what is the company’s valuation in terms of:
■Market Value/Earnings
■Enterprise Value/EBITDA
■Free Cash Flow Yield (After-Tax Free Cash Flow/Market Value)
■Market Value/Sales

■What is company’s growth rates in terms of earnings, EBITDA, and FCF?
■What are consensus earnings estimates, vs your own expectations?
■What are key leverage points in our own and the street’s earnings models? What has to go right, and where is most chance for surprise?

■Are their accounting policies conservative and in line with their peers?

Risks
■What are the big unknowns? How much can the company control/influence these risks?
■What could cause this investment to be a total disaster? How bad could it be?

Other (Timeline/timing issues) DO A TIMELINE!
■What are the catalysts (triggers) for the company’s proper valuation to be realized?
■What good news, and what bad news, will affect the company in the coming year?
■Who owns the stock? Momentum funds? Big mutuals? Hedge funds?

■How difficult is it to build a significant position (float, volume)?
■Draw a time line of expected events and dates. What might go wrong and when?

THIS checklist 👆👆👆for research on LONG investments can be a great guide and has guided some of the BEST hedge funds in history. In your investments, DO THE WORK and HAVE A PLAN! #stocks #investing