A checklist before you buy
Before buying one company, answer a few questions in writing. If you cannot, the price is the only thing you know.
The business
What does it sell, and to whom? Why do customers choose it over rivals? Could you explain how it makes money to a friend in two sentences?
The numbers
Have sales and profit grown over five years or more? Does profit turn into cash? Is debt small next to what it earns? Are margins steady or slipping?
The people
Do the bosses own shares? Are their pay and their targets tied to the owners’ results? Have they done what they said in past reports?
The price, and you
What would have to be true for today’s price to make sense? What could break that? If it halved, how much of your money would go? Write the answers down and keep them.
Key takeaways
- Write down why, before you buy.
- Check the business, the numbers, the people and the price.
- Size it by what a halving would cost you.