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Rate Yourself...A 20-Question Scorecard
for Stock Investors
by Dave Van Knapp, author of
SENSIBLE STOCK INVESTING:
How to Pick, Value, and Manage Stocks
and
THE TOP 40 DIVIDEND STOCKS FOR 2010:
How to Generate Wealth or Income from Dividend Stocks
March, 2007
Are you a good stock investor?
This Stock Investing Scorecard will help you understand what you do well. It
will also point out areas where you might look to improve your investing
practices.
Score yourself from 0 (worst) to 5 (best) on each of the following. Then check
your total score at the end to see where you stand.
1. I believe that the market is rational over the long term and rewards
sensible, intelligent investing. I also recognize that the market is essentially
unpredictable over very short periods such as a day or a week.
2. I always maintain a fiduciary duty to myself. I never forget Buffett’s
Rule #1: Don’t lose money.
3. I know my investment goals and have clear strategies to reach them. I
have written them out, and I review them at least once per year. I adjust or
amend them when appropriate.
4. I only invest in excellent companies with sound business models that I
understand. I must comprehend how a company makes money before I will
invest in it.
5. I always determine a rational price for any stock. I only buy at a fair or
advantageous price.
6. I know that a 50% loss on a stock followed by a 100% gain equals zero.
Therefore, I am very careful to avoid a large loss on even a single stock.
7. I manage my portfolio intelligently and consistently. This does not mean
that I trade a lot, but it does mean that I pay attention. I keep track of my
stocks, and I make strategic decisions about what to keep and what to sell. My
goal is to let my winners run and to sell my losers.
8. I know that any investment in the stock market carries risk. I actively
manage that risk. I am willing to tolerate some short-term variability in wealth in
order to gain the long-term benefit of beating inflation through stocks. I am not
willing to tolerate significant losses.
9. Before making any move in the market, I do everything I can to stack
the odds in my favor. I know that the best results come when I have an edge.
The edge can be better information, better analysis, an advantageous price,
better risk management, or a combination of all of them.
10. I read, analyze, and do my own thinking. I am always striving to
improve my investment practices. I never buy a stock solely on a tip.
11. Whenever I am interested in a company, I write out its “story” in a few
sentences. This includes the company’s business model, its strategies, its
prospects for sustainable profits, and (especially) its competitive advantages. If I
can’t understand it enough to do that, I don’t invest in it.
12. I only purchase a stock when it is showing strength. I want each of my
investments to get off to a good start.
13. I always look for companies with the best prospects for long-term
earnings growth. I know that over the long term, stock prices follow corporate
earnings.
14. I invest only in dominant companies. They have competitive
advantages that will enable them to sustain earnings growth.
15. I never trust management which has demonstrated a lack of integrity.
16. I have fun investing. I don’t overextend myself, and I never put money
into companies that make or do anything I don’t admire.
17. I am wary of companies with excessive debt, because I know that it is
as hard for them to handle as it would be for me. The mere fact that other
companies in the same industry carry lots of debt is no excuse. Interest on debt
is a drag on profits.
18. Although I do not demand that a company pay dividends, I do consider
the regular payment and raising of dividends to be a big plus factor.
19. I run my investments like a business. I am dispassionate when making
buy, hold, or sell decisions. I never “fall in love” with a stock. If it is a loser, I
let it go. I do not over-hold any stock just waiting (hoping) for it to get back to
even.
20. If I cannot find good investment opportunities, I am never afraid to
have some of my “stock money” in cash. I do not feel the need to be fully
invested at all times.
How did you do? The maximum score is 100. If your score is high,
congratulations! You are following a sound approach to investment success.
If your score is below 80, that raises a serious question whether you should be
investing in stocks at all. The good news is that you can improve your
knowledge and practices in every area.
Focus on your lowest-scoring areas. If you gave yourself a 0, 1, or 2 on any
question, that is definitely a red flag. Concentrate on improving your practices in
that area. My experience is that improving in any one area can have a significant
impact on your overall success in the stock market.
Of course, the best investors are good across the board. That should be your
ultimate goal. Investors sometimes go wrong by skipping essential steps. They
make “one-time” exceptions. Don’t do that. Follow best practices, and adhere
to your own written strategies and tactics, all of the time.
for Stock Investors
by Dave Van Knapp, author of
SENSIBLE STOCK INVESTING:
How to Pick, Value, and Manage Stocks
and
THE TOP 40 DIVIDEND STOCKS FOR 2010:
How to Generate Wealth or Income from Dividend Stocks
March, 2007
Are you a good stock investor?
This Stock Investing Scorecard will help you understand what you do well. It
will also point out areas where you might look to improve your investing
practices.
Score yourself from 0 (worst) to 5 (best) on each of the following. Then check
your total score at the end to see where you stand.
1. I believe that the market is rational over the long term and rewards
sensible, intelligent investing. I also recognize that the market is essentially
unpredictable over very short periods such as a day or a week.
2. I always maintain a fiduciary duty to myself. I never forget Buffett’s
Rule #1: Don’t lose money.
3. I know my investment goals and have clear strategies to reach them. I
have written them out, and I review them at least once per year. I adjust or
amend them when appropriate.
4. I only invest in excellent companies with sound business models that I
understand. I must comprehend how a company makes money before I will
invest in it.
5. I always determine a rational price for any stock. I only buy at a fair or
advantageous price.
6. I know that a 50% loss on a stock followed by a 100% gain equals zero.
Therefore, I am very careful to avoid a large loss on even a single stock.
7. I manage my portfolio intelligently and consistently. This does not mean
that I trade a lot, but it does mean that I pay attention. I keep track of my
stocks, and I make strategic decisions about what to keep and what to sell. My
goal is to let my winners run and to sell my losers.
8. I know that any investment in the stock market carries risk. I actively
manage that risk. I am willing to tolerate some short-term variability in wealth in
order to gain the long-term benefit of beating inflation through stocks. I am not
willing to tolerate significant losses.
9. Before making any move in the market, I do everything I can to stack
the odds in my favor. I know that the best results come when I have an edge.
The edge can be better information, better analysis, an advantageous price,
better risk management, or a combination of all of them.
10. I read, analyze, and do my own thinking. I am always striving to
improve my investment practices. I never buy a stock solely on a tip.
11. Whenever I am interested in a company, I write out its “story” in a few
sentences. This includes the company’s business model, its strategies, its
prospects for sustainable profits, and (especially) its competitive advantages. If I
can’t understand it enough to do that, I don’t invest in it.
12. I only purchase a stock when it is showing strength. I want each of my
investments to get off to a good start.
13. I always look for companies with the best prospects for long-term
earnings growth. I know that over the long term, stock prices follow corporate
earnings.
14. I invest only in dominant companies. They have competitive
advantages that will enable them to sustain earnings growth.
15. I never trust management which has demonstrated a lack of integrity.
16. I have fun investing. I don’t overextend myself, and I never put money
into companies that make or do anything I don’t admire.
17. I am wary of companies with excessive debt, because I know that it is
as hard for them to handle as it would be for me. The mere fact that other
companies in the same industry carry lots of debt is no excuse. Interest on debt
is a drag on profits.
18. Although I do not demand that a company pay dividends, I do consider
the regular payment and raising of dividends to be a big plus factor.
19. I run my investments like a business. I am dispassionate when making
buy, hold, or sell decisions. I never “fall in love” with a stock. If it is a loser, I
let it go. I do not over-hold any stock just waiting (hoping) for it to get back to
even.
20. If I cannot find good investment opportunities, I am never afraid to
have some of my “stock money” in cash. I do not feel the need to be fully
invested at all times.
How did you do? The maximum score is 100. If your score is high,
congratulations! You are following a sound approach to investment success.
If your score is below 80, that raises a serious question whether you should be
investing in stocks at all. The good news is that you can improve your
knowledge and practices in every area.
Focus on your lowest-scoring areas. If you gave yourself a 0, 1, or 2 on any
question, that is definitely a red flag. Concentrate on improving your practices in
that area. My experience is that improving in any one area can have a significant
impact on your overall success in the stock market.
Of course, the best investors are good across the board. That should be your
ultimate goal. Investors sometimes go wrong by skipping essential steps. They
make “one-time” exceptions. Don’t do that. Follow best practices, and adhere
to your own written strategies and tactics, all of the time.
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