How To Search For Winning Stocks

In the vast universe of shares on the Singapore stock market, some may feel like finding the next winning stock is almost like finding a needle in a haystack. One way to get started would be to build an investing checklist. Building an investing checklist is also a way to sieve out avoidable errors from our investing process. As the name suggests, the checklist consists of a series of questions or guidelines which help remind us on areas of the business to check or validate.

To get some advice in building the investing checklist, we can turn to value investor Mohnish Pabrai. Pabrai might be one investor worth listening to as his 19-year track record has been impressive. Since 1995, he managed to compound his own personal wealth at annualised rate of 26%.

Building an Investing Checklist

Earlier this year, Pabrai gave a keynote session on the topic of building an investing checklist. During the keynote, Pabrai shared the basis of his approach: He took a hard look at mistakes made by other investing maestros such as Warren Buffett and Charlie Munger. From studying the mistakes one by one, he proceeded to fashion a 97-question investing checklist which he has been able to use to good effect – yes, you read that right, 97! According to Pabrai, he has managed to limit the losses in the funds that he manages to around 1% over the past five years by using the investing checklist.

Of course, there isn’t a need for a regular investor like you and me to fashion our very own 97-question checklist. But it could be useful to have our own 5-, 10-, or 20-question investing checklist.

Examples of checklist questions

For instance, one qualifying question in his checklist was whether a businesses can be affected by worker unions, or monopolies at its supply base. Such industry characteristics are particularly prevalent for airlines operators such as Singapore Airlines Ltd. (SGX: C6L) and Tiger Airways Holdings Limited (SGX: J7X). Another checklist example would be whether the business can be negatively affected by cheaper foreign competition. In this case, an electronics retailer like Epicentre Holdings Limited (SGX: 5MQ) may face strong overseas competition for its electronic accessories.

Foolish take away

An investing checklist can be a way to whittle down the large number of shares listed on the Singapore share market market to a few companies worth studying. To be sure, Pabrai also mentioned that it is not often that a company passes the checklist with a clean bill of health. Instead, the goal of a checklist is to guide the investor towards eliminating potential blind spots which may elude even the smartest investors around.

If we can build our own checklist and refine it over time; we may eventually find ourselves questioning our way to investing success.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.