investing and personal finance

Bruce Berkowitz’s Basic Checklist and Lessons Learned

Bruce Berkowitz’s Basic Checklist For Investing

1. Can you kill the investment? Is there adult supervision at the company?

2. Is the company essential? Does it depend upon the kindness of strangers?

3. What can the company make? Reasonable profitability for owners?

4. How are owners paid? Distributions?

5. Management – honest in past and present?

6. Does accounting reflect reality?

7. Does the balance sheet match up with the income statement?

8. Catalysts – Buybacks? Misunderstood? Is enterprise having a big problem that is fixable? Everyone’s been burned by the stock so afraid to buy it.

9. Are there irrational fears of current headwinds?

10. Does the business have pricing power or unit growth?

11. Can you hold the investment for a long time & does it improve portfolio performance?

Top Ten Lessons Berkowitz Wishes He Learned Long Ago:

1. You always have to have cash, especially when no one else has it. (John Burbank of Passport Capital has said the same: “Cash is most valuable when others don’t have it.”)

2. No free lunch- it’s not free, or it’s not lunch.

3. You can’t change people! You can change yourself, but not others.

4. You only see reality under extreme stress- you want to get to know someone, you need to see them under extreme stress. (MF note: Completely baseless guess, but does anyone else think he’s possibly referencing the situation where Fernandez left FairholmeCap here?)

5. Volatility is not risk!

6. Always assume you will have bad luck.

7. Few variables to win. Once you have to think about more than 3 variables, your odds of winning are low.

8. If you have to use more than 6th grade math, you’re in trouble.

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