What are some critical components you look for when building a strong investment thesis?
My primary checklist is:
1. First test is: how easily can I explain the business to a friend or family member and do they understand it?
2. Does the business have a moat and can I easily qualify/position it?
3. Do I truly believe that the moat is "durable" i.e., is it sustainable over the long-run?
4. If I were given "X" MUSD could I disrupt the business? (i.e., "testing" the moat)
5. What's the track record of the management team?
6. What does the barriers to entry for the industry look like?
7. Where is profit made in the industry - profitpool / value chain analysis
8. Does the sustainable competitive advantage of the firm derive from local or global markets?
9. Has anyone tried to enter the market and if so how did they do --> I'd love to see incumbents having tried to enter the industry but having failed
10. If I do a general search on the web what does people say about the firm - looking at customers perception; this does not work for all businesses
11. How exposed is it to macro factors? Is it a discretionary / nondiscretionary product
12. Where is the business in its life cycle and how is it positioned to utilize that position?
13. Does it generate ROIC > WACC at a persistent level?