THE INVESTOR

Step 1: Capital Allocation

1. Financial position
2. Age
3. House

Step 2: Temperament
1. Value investing: Books by, letters, interviews of Graham, Buffett, Munger
2. Behavioural finance: Books by Kahneman, Thaler, Cialdini

THE INVESTMENT
Step 3: Shortlist
1. Idiosyncratic picks
2. Systematic screening
3. Census

Step 4: Know the Business Strategy: Books by Phil Fisher, Michael Porter
1. Products
2. Technology
3. Knowledge base
4. Competition
5. Management
6. Regulation

Step 5: Analyse Past

1. Information in financial statements: Ch 7-10
1. Reformulation of financial statements
A. Leverage & operating income: Ch 13
2. Ratio analysis/Analysis of drivers
A. Profitability - ROE: Ch 11
1. Level 1
2. Level 2
3. Level 3
B. Growth: Ch 12
2. Information outside financial statements

Step 6: Forecast Future

1. Pro forma financial statements: Ch 14

1. SF 1
2. SF 2
3. SF 3
2. Accounting issues
1. Permanent: Ch 16
2. Temporary - Quality of earnings: Ch 17
3. Information outside financial statements: Ch 15

Step 7: Valuation
1. Without forecasting
1. Comparables: Ch 3
2. Screening: Ch 3
3. Asset-based valuation: Ch 3
2. With forecasting
1. Numerator
A. Dividends: Ch 4
B. Free cash flows: Ch 4
C. Book values: Ch 5
D. Earnings: Ch 6
2. Denominator - Cost of capital
A. Cost of equity: Ch 18
B. Cost of debt: Ch 19

Note: Chapters refer to Stephen Penman FSA 4e