The Successful Investors Check-List

Most investors believe that becoming successful in investing is simply a function of their financial analysis prowess or stock picking ability. That couldn’t be further from the truth. What separates the winners from the losers is their understanding of why they do what they do.

If you don’t truly understand your fundamental beliefs and underlying motivations for investing, your chances of becoming a successful investor are minimal.
I’m going to take you through a step by step process that can take you from the many investors that underperform the stock market averages to a winning investor. It’s a template from a higher end coaching program that’s been used with great success to improve investor’s results.

With that said, I’d bet that fewer than 10% of people take the time to do the following exercises and think about their answers, but that’s what separates the winners from the losers.

Let’s get started.

The Fundamentals

To be successful in the stock market, it takes conviction to stick to your investment approach in the face of constant uncertainty, adversity, and short-term losses.

If you don’t have a sound philosophy to guide your investment decisions that’s aligned with your personality and has been proven to work in the long-term (your edge), you will lack the conviction to stick to your approach in the face of adversity and thus, will make lousy investment decisions when under duress. This will cost you a great deal of money.

Every successful investor, (sports coach, political leader, and business executive) has a set of guiding principles and fundamental beliefs that provide the foundation for what they do and why they do it.

They develop the foundation of what they do based upon the teachings of the leaders that came before them, adapt these winning strategies to their unique abilities and make it their own.

It’s the same approach Warren Buffett used to build his success. He built his foundation upon the teachings of Benjamin Graham and then incorporated concepts from Phillip Fisher, Charlie Munger, and others, which strengthened his approach.

He further adapted the process to his unique abilities and strengths. He knew why he was doing what he was doing and what the expected long-term results would be if he stuck to his approach. That’s a big reason for his tremendous long-term success.

It’s only when you have congruency between your unique talents, your investing style (value, growth, long-term, short-term) and your financial goals that you will finally achieve success.

Understand Your Guiding Principles

The section attempts to help you answer why you’re doing what you’re doing. I’m going to take you through a short series of questions to help you get to where you need to be.

Take a little time to complete the following questions, but don’t over-think them. You will be amazed how much this process can improve your results.

Question 1: Why do you invest in individual stocks (mutual funds, options, ETF’s) and what do you hope to get out of it?

Comments for question 1: If you’re picking stocks because of the adrenaline rush or thrill of it, you’re gambling and will more than likely blow-up and lose all your money. If you’re picking stocks to get rich, you’ll probably take on too much risk and suffer substantial losses. If you’re investing in stocks because you feel there’s no other alternative, you won’t get great results because your heart isn’t into it. If you’re investing in stocks for any of the above reasons, you’re much better off using index funds for the majority of your investment dollars. Then set aside a small percentage that you can afford to lose for speculative investments.

If, on the other hand, you’re a stock investor because you love what you’re doing without regard to money and you understand why your investing philosophy works, then you’re on your way to becoming a master investor.

Question 2: Explain in simple terms how you pick stocks (mutual funds, options, ETF’s) in which to invest.

Make it easy enough for a fifth grader to understand, if you can. This would be the equivalent of understanding your business so well, that you could write your business model down on a napkin, and investors would understand it.

Comments for question 2: If you can’t easily explain your investment process to a peer, your chances of success are very low.

Question 3: Why do you follow the investment strategy and approach you do?

Comments for question 3: If you’re following an investment strategy and it’s not working, try a new approach. I found out that I’m terrible at chasing high growth momentum stocks and I’ve never been able to replicate the results of an investing approach until I’ve made it my own. Find an investing style that plays to your strengths in regards to risk and return.

Why You Buy and Sell Stocks

Question 4: How do you know when to buy or sell a stock (mutual fund, option, ETF)?

What’s the exact step-by-step process or checklist that you use? What analysis do you use to value the company and its stock price? What fundamental and/or technical factors do you use to execute buy and sell decisions?

Comments for question 4: If you can’t answer these questions you have no reason to invest in individual stocks other than for speculative or entertainment purposes.

Question 5: Looking back over your records of winning and losing investments and at your answers to question 4, what’s worked for you and what hasn’t?

Is there a particular strategy that doesn’t work or works exceptionally well? Is there a day or time of the month that leads to more or less winning trades? It’s essential that you look at results over a series of bear and bull markets. What works best in one type of market often performs worst in a different kind of market.

Comments for question 5: If you’re unable to answer this question honestly and correctly, it’s because you lack the necessary record keeping to do so.

If that’s the case, start keeping records of why you made your investment decisions. Those records will become your greatest teachers.

Write down why you made your investments, the result you saw, and what was going on in your life at that time. You may find that you make poor decisions when things are stressful in your life or when things are going so well that you lose respect for market risk.
By studying your records, you will learn two critical things that will exponentially increase your results. The first is why and when you make bad decisions. Look for trends, eliminate bad strategies or trading times and your results will improve dramatically.
The second is that your records will show you where and when you make your best decisions so that you can focus on your area of expertise, your edge.

Do less of what doesn’t work, and more of what does.

Individual Factors

Now it’s time to evaluate the finer details of your stock selection process.

Question 6: What are the primary individual factors you use to choose your investments? What financial model do you use? Ratios and other economic factors? Rate your comfort level of understanding and using each of these factors on a scale of 1-10 next to the factor.

Question 7: Why do you use each of the factors above?

Comments for questions 6 and 7: Look at your answers to questions 6 and 7. Is there a relationship between your comfort level and understanding of each factor and how well that factor works for you in selecting stocks that beat the market averages?

If there’s a ratio, factor or decision making that’s not working for you, why are you still using it? Can you get rid of it without impacting essential facets of your decision-making process?

This is where record keeping comes in handy. Throw out whatever has had a negative impact on your investing and that which is duplicative or doesn’t add value.

Next, evaluate the components that you rated were your weakest to decide if you need more education in that area. The best choice, if it’s available to you, is to partner up with someone that does well in the areas that you don’t.

Evaluation Time

In going through this exercise, you have been building your stock selection philosophy and investment principles based upon what’s worked for you.

You’ve eliminated that which creates confusion and does not improve your results.

The goal of this exercise is to be as honest with yourself as possible because it will pay off at the end. It will help you to define your edge and admit where you are weak and don’t have an advantage.

If you were unable to complete the questions, or you’re still confused after looking at your previous answers, I would venture to guess that you’ve been underperforming the market unless you’ve gotten lucky or you rode a bull market where just about everything makes money.

Now it’s time to refine your approach based on your previous answers and to continue learning and improving. Study the works of successful investors. Write out their investing philosophies and the basic framework of picking stocks and investments. Put it into practice with real money (small amounts that you can afford to lose), so you can get comfortable making decisions when things are either going well or very poorly.

Keep records. Track what works and doesn’t work for you. If you’re weak in a particular area, team up with someone that excels in that area to form a strong team. That’s exactly what Warren Buffett did with Charlie Munger. It will make you a better investor.

Putting it All Together.

Before you take on any new investment, walk through the process you have created by doing this exercise.

Take the investment through your checklist to make sure it meets all your requirements. Many investors tape their completed investment philosophy, process, and buy/sell rules to their computer to help them make the right decisions.

After you have found a potential investment based on your checklist and walked it through your qualifications, you have to take it through the final process. You must answer the following questions before making any new investment.

What’s the probability of the investment working or not working? What is your best guesstimate?

When will you sell, and when you will repurchase the investment if it initially goes against you?

How much of your capital are you willing to risk losing on this investment? Do not lose more than you’ve decided on. That’s where investors get in trouble.

How quickly can you scale out of the investment when it’s time to sell a winning position or more importantly, sell when unexpected bad news strikes and the stock plummets in price?

You must be able to mentally run through various scenarios by attempting to quantify the probability and the magnitude of the possible gains or losses. Then you will know how to react, no matter what situation arises – good and bad.

This step will help you instantly react to an unexpected “black swan” type of scenario that could threaten you with devastating losses, or on the positive side when to lock in profits when you’re blessed enough to have your investments make a big move in your favor.

Visualize what will happen if things go right for you and how you’ll react. When will you add to your investment? When will you sell?

Visualize what will happen if things go wrong for you and how you’ll react. When will you sell? What would cause you to get back into your investment?

Stick to those numbers. It’s often the difference between marginal and optimal performance.


The final step in this process is to occasionally revisit this process.

As you evolve, you’ll adapt and improve. Continually eliminate the weaknesses that cost you money, and partner with other investors that fill those gaps. Build on your strengths and exploit the advantages in the stock market that you have developed to maximize your investment returns.


It’s impossible to cover all aspects of investing in one book. I have concentrated on teaching you the basics of sound investing by covering the fundamentals used by the greatest value investors of our time.

Unfortunately for you, there is not a secret or straightforward formula that you can plug in and be guaranteed to match the performance of the best investors. You’ll have to incorporate your unique talents and abilities into the nine steps outlined in this book to be successful. This is no different than the process followed by the value investing legends that preceded you.

That’s why the second chapter of this book is so important. You have to learn what works for you and what doesn’t based on your abilities. You need to understand your motives for investing in stocks and develop your guiding principles. If you don’t do that, you’ll never be able to stick to your approach in the face of the constant market noise and contradictory information. You’ll end up second-guessing yourself and making bad decisions.

It helps if you have natural talent provided at birth and honed with experience. Geniuses and great talent are born with an aptitude that allows them to excel in certain areas, whether it’s Warren Buffett in investing, Mozart playing the piano, or Michael Jordan playing basketball.

The good news is this. I’m far from a genius, and I didn’t attend one of the top business schools. Yet, I’ve still been able to comfortably beat the market averages by taking into consideration the first nine steps I’ve provided to you. There’s no doubt in my mind that you can do the same with a little bit of work.

My success comes from using these principles on small-cap and mid-cap stocks along with the occasional large-cap stock. I have found that it helps to loosen the cash flow per share for companies that still have room to grow and to allow slightly higher debt levels for capital intensive industries during periods of economic growth and low-interest rates.

How to Get Started

The biggest question I get is, how do I get started? I could give you 20 case studies of stocks I’ve selected that have done well, but they’d all be slightly different. The same could be said for Warren Buffett and many other investors.

What I do at the most basic level, and what I recommend you do, is to start with a list of good companies. Find a company that passes the majority of steps, has good prospects, good management, and has been able to grow even during tough times in the economy. Buy the stock after a market downturn or temporary setback.

Here’s another option using what you already know.

Start with step one in this book. Make a list of the leading companies in industries you know well. If you don’t understand many industries, start with companies where you shop, that you know and that you trust.

When you have compiled a list of companies, the next step is to wait for the company to qualify under one of the financial ratios outlined in step two. Once they are eligible for step two, measure the company against steps three through nine. If the company passes those tests, buy the stock.

If you’re like most investors, you’re short on time due to work and family obligations. If you lack time to do the proper stock evaluation, another approach I recommend is subscribing to one of the higher performing stock newsletters to get your starting list of stocks.

It’s a lot of work to be successful, but if you love what you’re doing, it’s a lot of fun once the process is in place. Decide if you’re willing to do what it takes to be successful, or if you’d like someone else to do it for you.

I wish you the best in your investing success.