Charlie Munger has said for decades that the single best investing technique is a written checklist. The reason is psychological: when you're excited about a stock, you skip questions. A written checklist forces you to slow down and answer each one explicitly. Most people who blow up on a stock lose money not because they couldn't find the right answer to a question - but because they didn't ask the question.
This is a 27-question checklist organised into five sections: business quality, balance sheet, management, valuation, and personal portfolio fit. Run any stock through it before buying. Skip none.
This is the printable extended version. The shorter live version on every per-stock page is at /buffett/[ticker]/.
Section 1 - Business quality (8 questions)
The business has to be wonderful before the price matters. Buffett's repeated framing: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
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Can you describe what this company sells, to whom, and how it makes money in one paragraph? If no, skip; you don't understand the business well enough yet.
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Has the business earned a sustained return on invested capital (ROIC) above 15 percent over the last 5+ years? Below 15 percent in a normal economy signals commodity-grade economics, no pricing power.
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Does the business have at least one identifiable moat source (brand, switching costs, network effects, scale, regulatory barrier)? Name it explicitly. If you can't, the moat probably isn't there.
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Has the company's revenue grown consistently over the last 10 years, or does it move with cycles? Stable revenue + growing margins is the compounder profile. Cyclical revenue with hot-and-cold profitability is harder to underwrite.
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Is the gross margin stable above 30 percent (40+ in industries where peers sit lower)? Sustained gross margin compression is one of the earliest warning signs of moat erosion.
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Does the company have a clear, durable customer-acquisition advantage? Examples: brand pull (customers seek out the product), network effects (more users attract more users), distribution dominance.
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What would need to change for this business to earn 50 percent less in 10 years? If you can't answer this, you don't understand the business risks. The question forces you to identify what you're betting on.
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Is this business simple enough that a thoughtful 12-year-old could follow your explanation? Complexity is a red flag - it usually means hidden risk or the business model isn't actually what it seems.
Section 2 - Balance sheet (5 questions)
A wonderful business with a fragile balance sheet is more dangerous than an average business with a fortress balance sheet. The 2008-2009 financial crisis hit "wonderful business" banks first because their leverage was hidden inside their business model.
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Is net-debt-to-EBITDA below 2.5x? Fortress territory is below 1.0x. Above 3.5x is risk zone - a recession can force refinancing at the worst possible rate.
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Is the current ratio above 1.5x? Means the company can pay its short-term bills from short-term assets without selling long-term assets at a discount.
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Is interest coverage (EBIT / interest expense) above 5x? Below 3x means a moderate earnings drop turns into an interest-payment crisis.
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Does the company have positive free cash flow consistently across the cycle? A growth story with no FCF for 5+ years is a story, not a business.
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Is goodwill less than 50 percent of total assets? High goodwill from M&A means the company has bought growth rather than built it. Watch carefully.
Section 3 - Management (5 questions)
The management team allocates the capital that determines whether the business compounds for shareholders. Even a wonderful business with sloppy capital allocation underperforms.
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Has the CEO been in role at least 5 years, with a documented track record? Recent CEO transitions are higher risk; the framework can't read intentions, only history.
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Does insider ownership exceed 1 percent of shares outstanding (or, for very large caps, exceed 0.5 percent)? Skin in the game matters. Berkshire's classic test.
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Has share count grown or shrunk over the last 10 years? Growing share count via dilutive issuance is a yellow flag. Shrinking share count via systematic buybacks is a Buffett-style signal.
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Are executive compensation levels reasonable relative to peers? Excessive option grants, sky-high CEO salaries vs median employee wages, and complex performance structures often signal misalignment.
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Has management been transparent about past mistakes in their shareholder letters? Buffett's letters openly discuss errors. Letters that read like pure marketing should make you nervous.
Section 4 - Valuation (5 questions)
Now and only now, the price.
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What is the current owner-earnings yield (FCF / Enterprise Value)? Below 4 percent is expensive for a slow-growth business. Above 7 percent is interesting if the business is durable.
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How does the current EV/EBIT compare to the company's 10-year historical median? Trading near the 10-year low quintile is a value signal; trading at the 10-year high quintile is a yellow flag.
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What does a discounted cash flow (DCF) calculation give as fair value, using conservative growth assumptions (3-7 percent for 10 years, 2.5 percent terminal)? A 30+ percent margin of safety between DCF and current price is Buffett's threshold for new positions.
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What is the dividend yield, and is the FCF payout ratio comfortable (below 60 percent)? For income-oriented buys, both matter - the headline yield without payout-ratio context can mislead.
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Has the stock been hated or loved over the last 12 months? Hated stocks with intact fundamentals are usually better entries than loved stocks with deteriorating fundamentals. Recency bias is the value investor's enemy.
Section 5 - Personal portfolio fit (4 questions)
A passing checklist score doesn't mean buy. The stock has to fit your specific portfolio, tax situation, and time horizon.
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How much would you size this position at, and what does that do to your portfolio's total concentration? Buffett-style sizing is concentrated (5-15 names typically). But concentration without conviction is gambling.
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What's your time horizon for this position? Buffett's answer is "forever or close to it." If you'd sell at a 30 percent gain, you're not actually a value investor; you're a momentum trader using value language.
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What's your exit criterion? "If the business deteriorates" is the answer Buffett gives. "When it rises 50 percent" is the answer that produces below-market returns over time.
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Have you waited 24 hours since first deciding to buy? Munger's pre-mortem trick: if you slept on it and still want to buy, your conviction is genuine. If the urgency has faded after 24 hours, it was probably noise.
How to use this checklist
Print it. Run every position through it. Document your answers. Re-read your answers in 12 months and grade your own analysis. The discipline is the point.
Some practical tips:
- One stock at a time. Don't try to checklist 10 stocks in a sitting. Quality of analysis falls off fast.
- Answer in writing. Even better: in a notebook you can't easily edit. The act of writing the answer fixes you to it.
- Don't skip the questions you can't answer. If you can't answer Q3 (the moat source), the answer is "skip this stock" not "guess at a moat."
- The 24-hour rule is the most important. It catches the most expensive mistakes.
Where this overlaps with the Buffett-Fit Score
invest-like.com's Buffett-Fit Score answers ~14 of these 27 questions mechanically from public data:
- Q2 (sustained ROIC) - pillar 1
- Q3 (moat source) - pillar 1 qualitative tagging
- Q4 (revenue stability) - pillar 2
- Q5 (gross margin) - pillar 1
- Q9, Q10, Q11 (balance sheet) - pillar 4
- Q12 (FCF) - pillar 2
- Q16 (share count) - pillar 3
- Q17 (compensation) - partial, pillar 3
- Q19 (owner-earnings yield) - pillar 5
- Q20 (EV/EBIT vs historical) - pillar 5
- Q21 (DCF) - pillar 5
- Q22 (dividend safety) - separate /best/dividend-safety/ surface
- Q23 (loved vs hated proxy via recent return) - partial
The other 13 questions (qualitative business understanding, time horizon, position sizing, your personal psychology) require your own input. No screener can answer them for you. That's why the checklist exists in addition to the score.
Further reading
Educational only. Not investment advice.