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16 Reviews
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26 of 28 people found the following review helpful
5.0 out of 5 stars Great methodology for investing
Anyone wishing to utilize a disciplined method for investing should read this book by Shearn.
Good investing mean avoiding mistakes and taking calculated risks. Identification of risk involves
deep thinking about "what can go wrong?". This is where this book shines, since it forces you
to adopt a structured approach of working through a checklist of the...
Published on December 28, 2011 by R. Michael Knipp

versus
16 of 17 people found the following review helpful
2.0 out of 5 stars Should be titled "Is Your Management Team Lions or Hyenas?"
To be honest, I really don’t understand these 5* reviews for this book. In fact, this was one of the more severe letdowns for me. I was expecting a check list full of both quantitative and qualitative measures regarding a business, but instead, the quantitative part is kept to a minimum, with the subjectivity of qualitative measures dominating the book. Now, just...
Published 4 months ago by Ant Gara


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26 of 28 people found the following review helpful
5.0 out of 5 stars Great methodology for investing, December 28, 2011
By 
R. Michael Knipp (Burr Ridge, IL United States) - See all my reviews
Verified Purchase(What's this?)
Anyone wishing to utilize a disciplined method for investing should read this book by Shearn.
Good investing mean avoiding mistakes and taking calculated risks. Identification of risk involves
deep thinking about "what can go wrong?". This is where this book shines, since it forces you
to adopt a structured approach of working through a checklist of the possible unknowns.
Too many unanswered items? - Take a pass until you can complete the checklist.

What I really liked about the book are the tons of real life examples of exactly what he means.
You look at investor conference calls in a different way, as it has an exhaustive section
on evaluating management and their responses. Are they honest? Are the overly promotional?
What are they trying to hide? You see real life examples of both sides - the good and the bad ones.

The book made me think of many situations in the past that were strong clues about excessive risk.

Another useful aspect of the book is that it provides many outside sources (websites, etc) to
check your facts. Investing in teen retailers? Shearn provides a number of free sources
to verify and understand trends.

I've no doubt that this book will make me better at researching a company.
For anyone not employing a checklist - the Shearn checklist provides a great template to success.

R. Michael Knipp
Private Investor
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18 of 19 people found the following review helpful
5.0 out of 5 stars Fundamentals are more than a few numbers, September 26, 2013
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I have to say this is a book that pushes my investing skill to a new level. If you are a short term trader that want to make some "quick money" in days or weeks this book probably won't help a lot. If you are a serious investor that cares about the fundamentals of the company you invest, then this book will teach you a lot.

I am an O'Neil style investor. Originally fundamentals to me are just some numbers: ROE, Profit margin, EPS, sales growth etc. Although this did not prevent me from catching some big fish like LULU or ALXN, I did miss several opportunities due to a lack of deep understanding of the business. Every time there is a sharp decline on heavy volume with no news, I have no idea what to do and the only conclusion is some institutional investors are dumping shares which is usually not a good thing. As a result I was shaken out of positions that turn out to be bigger winners for several times, such as VRX and QIHU this year.

After I read this book, I started to spend time reading 10-K and 10-Q which can give me a lot of insights of the financial health beyond those numbers. Based on the points in the checklists I produced my own checklist and feel more ease amid market fluctuation, because now I know the business beyond numbers.

Some book reviewers say the book is too much for them and I partially agree with that considering we are busy and have full time job. Some points in the checklist are too "advanced" for me, meaning the data can not be acquired easily by individual investors. But most of information are contained in SEC filings. If you don't want to spend time understanding the business, why do you throw your hard earned money into it? There is no free lunch.
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16 of 17 people found the following review helpful
2.0 out of 5 stars Should be titled "Is Your Management Team Lions or Hyenas?", March 9, 2014
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To be honest, I really don’t understand these 5* reviews for this book. In fact, this was one of the more severe letdowns for me. I was expecting a check list full of both quantitative and qualitative measures regarding a business, but instead, the quantitative part is kept to a minimum, with the subjectivity of qualitative measures dominating the book. Now, just because qualitative descriptions are what the majority of the book is about doesn’t necessarily mean it’s a poor book; it’s the type of qualitative measures the author presents that really hampers it. Due to this, it’s unclear whether the book is written for the individual investor who wants to simply put more time into his investment evaluation, or for the professional analyst working at a bulge bracket firm.

As an example of the author not knowing his audience, he mentions in order to gain a better insight into 99 Cent Stores, he visited over *100* of their stores! Yes, you read that right, over one hundred stores. Unless the author’s firm was contemplating buying the entire business, there is ZERO insight a person would gain after visiting the 20th store versus the 110th store. Now, if you’re a professional analyst and your boss is paying you to visit all these stores, hey, why not? But as an individual investor, the notion that you’d need to even visit a fraction of this amount is absurd. Visiting as many locations as you REASONABLY can is a great method right out of the Peter Lynch school of investing, which I wholeheartedly endorse, but really, over a hundred locations? Come on.

Another instance of this lack of audience awareness is Appendix B, titled “How to Interview the Management Team.” Unless your last name ends with Buffett, Soros, or Gross, the average investor will never have an opportunity to ask management questions. Now, if this is for the professional analyst, this is fine, but for everyone else, it’s pointless.

Beyond not knowing his audience, the author spends 3 full chapters on qualitative measures to evaluate the management team, or 100 pages out of 320 total (approximately a THIRD of the entire book). I believe having an understanding of who’s running the business is a fine use of time, but the author spends several sections on themes that should have, for the most part, NO BEARING AT ALL on your decision to buy or sell a stock. Examples of these sections include “Is the Manager a Lion or Hyena?” “Is the Business Managed in a centralized or decentralized way?” “Does Management Value its employees?” “Does Management Treat Employees with Respect When They Lay Them Off?” (I’m not joking) and “Does the Business Have Identifiable, Shared Values?” Aside from these questions either being simple buzzwords ("shared values") or largely irrelevant to an investor/analyst, HOW is someone supposed to know if a business treats employees with respect when laying them off? Or whether employees all have the same values? (The author suggests going up to random employees and asking if they know what their business' "shared values" are. Again I'm serious here) I’ve never heard of a fired employee saying “Yeah I was laid off, but they were very gentle with how it was done, I appreciated the experience.” These three chapters read more like a human resources manual and less like an investment piece.

Now, there are some positive points to this book. The authors spends time on discussing operating leverage, which very few investment works seem to include. He also discusses “quality of earnings” (albeit in not much detail beyond “operating cash flow should exceed net income” or “watch for excessive restructuring charges”), as well as ROIC (but only mentions ROE once, so…) and how to gauge management stock compensation schemes. The parts on understanding the business from the perspective of the customer is also interesting, as it is the customers that ultimately decide how successful a business is. The industry analysis is worthwhile in that he discusses how to use other financial metrics that can’t be ascertained from the standard financial statements, such as revenue per hotel room or increase in same-store sales. Perhaps the biggest surprise was his in depth discussion of working capital management, using the cash conversion cycle. This part of the book is definitely the high light.

Amazingly, considering the book is written for the long term investor, there isn’t a **SINGLE** chapter/section/whatever on valuation! A third of the book on discovering the personality traits of the CEO (Is he a lion or hyena?) but NOT A SINGLE PAGE ON VALUATION (“buy cheap” is about as elementary as it gets). Unless you’re looking to do a character study on your favorite CFO, take a pass on this book.
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13 of 14 people found the following review helpful
4.0 out of 5 stars Good book - a little discussion on valuation would have been nice, January 4, 2012
By 
Andrew Wesley McDill (Chicago, Illinois United States) - See all my reviews
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Overall, I thought the book was very interesting and well written. It did a nice job of helping people learn how to think about businesses from a strategic and competitive point of view. The one thing that would have made the book better would have been some discussion to tie the strategic analysis of the company to some valuation frameworks. There was some mention of what the author and his firm were paying for certain companies when they purchased the stock, but it was not a complete discussion of valuation and the related value investing concept of a margin of safety. With that said, I do think that the anecdotes included in the book were helpful and added good context.
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6 of 6 people found the following review helpful
5.0 out of 5 stars Great book that addresses a specific topic, November 25, 2013
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This book is really useful and I have enjoyed it thoroughly, however, you will love it even more if you are a fundamentals oriented investor. I don't remember the author discussing it in his introduction, but the idea of checklists has been popularized by Atul Gawande in his fantastic book 'The Checklist Manifesto'. In the book he discusses how Mohnish Pabrai utilizes checklists as a means to prevent investment mistakes. It is from this background that the investment checklist originates.

If you are a subscriber to the Manual of Ideas, then you will be a little more familiar with investment checklists and some of the uses and misuses. However, it is certainly a very accessible book for the professional and avid personal investor a like. There is one 3 star review on here from a individual/retail investor, and I don't blame him for putting 3 stars. It doesn't have the raw appeal of a Peter Lynch type book, but addresses a very specific part of the investing process and without a deeper understanding of all the other parts, putting it together may be a challenge.

A couple of points that I would have liked to be more explicit in the book, however are:
1) Explain to the reader that investment checklists are supposed to be obvious and simple, because it is precisely these obvious points that investors choose to ignore when they get into the most trouble (i.e. permanent loss of capital). A more accurate title, may have been 'How to Identify Investing Red Flags'. The use of the checklist is not that it is supposed to teach you something new (although it surely will), but to sharpen one's investing process.

2) A mistakes section. Mohnish Pabrai's checklist has been built mainly from the investing mistakes of investment professionals he admires. So there is a specific point regarding peak earnings or operating leverage or foreign competition, which come from specific mistakes. E.g. Cort furniture was an investment mistake by Berkshire Hathaway and it was made because Munger forgot to take into account that Cort's earnings were being artificially inflated by the dot-com boom, as many new start ups were renting furniture. It would be good to have seen more points that were specifically based on real-life mistakes, rather than just where Shearn thinks they might be.

3) A very minor criticism, but Shearn does repeat a few of the examples a few too many times. You will read a lot about Robert Silberman (strayer), David Gold (99 cent only store), Bruce Flatt (Brookfield). A few more range of examples to draw on would have been good.
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9 of 11 people found the following review helpful
5.0 out of 5 stars Great Book, August 23, 2012
I have read a myriad of investment books including Margin of Safety, Art of Short Selling, Buffettology, etc. etc. This one is on the top of my list as far as investment guidance. It really will teach a money manager or individual what to look for. Author should turn it into a workbook as well. Very impressive.
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10 of 13 people found the following review helpful
5.0 out of 5 stars Best Book on Investing, February 26, 2012
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This review is from: The Investment Checklist: The Art of In-Depth Research (Kindle Edition)
This book provides great structure to your investing process. The author takes you step by step through the investing process. He break down the fundamentals of each step in simple interesting examples. This is one of the best books on investing I have read in a while.

Best part of this book, it is very light and easy reading. This book is a must buy for anyone looking to get started in investing.
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3 of 3 people found the following review helpful
5.0 out of 5 stars Wow, there hasn't been anything more useful that an investment analyst could use for long term investing, February 19, 2014
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This review is from: The Investment Checklist: The Art of In-Depth Research (Kindle Edition)
Buffet's letters are great, but they tell you the same thing - "Buy great businesses at favorable prices". It's analogous to saying "date attractive and intelligent women who have a great personality."

This book shows you how to analyze companies and their stocks to know with more certainty if you are in fact buying a great business at a favorable price - very practical.

However, this book may not be very helpful for answering how to "date attractive and intelligent women who have a great personality". I'll still give it 5 stars ;)
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2 of 2 people found the following review helpful
5.0 out of 5 stars Common-sense, May 8, 2014
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This is common sense but introduced in a way that teaches you how to think about companies, e.g.,why cash flow is important, how it can be affected, how yearly reports can be misleading unless you look at several years....things you never think about, but are logical when presented this way.
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2 of 2 people found the following review helpful
5.0 out of 5 stars Improve your investment process with this book, January 8, 2014
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This is the one book you should read if you want to develop a more rigorous equity investment process. Michael Shearn does a masterful job of setting out investment checklist criteria that can be used to form the skeleton of any equity analysis. He walks the reader through the most important items for evaluating and valuing a business. The book is very exhaustive, and you'll benefit even if you take away just a few pieces of wisdom from it. Michael's ultimate focus with an investment checklist is to figure out the intrinsic value of a business. This is critical to successful investment, as the gap between intrinsic value and market value helps determine an investor's margin of safety. Highly recommended book!
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