My stock buy checklist

Here are all my current stock buy requirements. These are not listed in any particular order but are grouped by:

• Facts which can be checked quickly. 
• Mandatory requirements, no compromises here.
• Preferences and somewhat soft criteria, where at least a few should be fulfilled.
• Three sanity checks to execute just before buying.

I will just publish my checklist to keep this post manageable. Some requirements may need more explanation. I will add those later in separate articles. 

Quick checks 

• The company must be in the consumer staples or infrastructure industry.
• Market cap or tangible book value minimal USD 100 million. Higher threshold for Mainland China: a minimum of USD 500 million. 
• Market liquidity of the share is sufficient to support buying and selling by a small, private investor like me.
• Financial reports in English or at least a summary in English. 
• Not a turn-around, spin-off or other special situation. Keep it simple. Not a company which is mainly valued for its stake in another company, 'hidden' treasures on the balance sheet, supposedly undervalued properties, cash balances or other 'workout' situations. Only focus on the operational activities.
• Not an ETF, OTC, RTO, SPAC, IPO, fund, investing company, finance company, or venture capital firm.
• Does not rely on just one fashion brand in the clothing or cosmetics industry.
• Not a commodity producer or trader.
• Not a project-based income earner.
• No negative equity or book value. 
• There is at least one research publication of decent quality on the company, such as broker research,  rating agency debt report, or an industry publication.
• There are no (credible) short-sell reports on the company.
• Does not significantly depend on operations in Africa, the Middle East, Latin America, Japan, Hong Kong, India, Russia or any frontier markets. I am not familiar with these regions.
• Does not depend on a single customer or only a handful of customers.
• Not a real-estate developer or a REIM. A REIT is fine, but not when invested in mortgages or private residences. Also, no REIT's with just one party as a dominant tenant. 

Mandatory requirements

• Growth or a reasonable growth expectation. 
• Reasonable or low valuation. 
• I understand the business operations and significant drivers of business success. 
• Not over-leveraged with debt. Debt/Equity < 1. Or if it is larger than 1, then Debt/EBITDA < 3  or Interest Coverage > 3.
• The company is operating and performing right now. Not a story stock with promises for the future. The company is profitable or likely profitable soon. Free cash flow (FCFF) is also positive or will be soon. A temporary negative free cash flow might be acceptable if it results from sensible investments.
• No concerns about management ethics and honesty.

Preferences

• Pays regular dividends or dividend payments were temporarily stopped for a good reason. 
• Incorporated in a jurisdiction with no or low dividend withholding taxes.
• Activities with a competitive advantage (moat) as proven by good returns on capital.
• As non-cyclical as possible. 
• For the consumer staples: one or more brands, a large and diversified customer base. The company is making money from many daily, small and predictable transactions.
• Diversified. Does business in several countries, regions, and through different brands.
• Owned and operated by a reputable founder or founding family with skin in the game.
• The company has existed for a long time already.
• Not in a web of companies manipulated by some tycoon or syndicate of investors with unclear reputations and goals.
• No outsourcing of core activities.
• Conglomerates: only when the business operations were initiated, not bought, by the management. They have skin in the game and articulate a clear strategy. I will never count on a realization of value by breaking up the conglomerate. (It won't happen).

Pre-buy sanity check

• Am I relying upon a future catalyst to realize value? If so, consider another stock.
• Will I sleep well at night while holding this stock for the long term?
• Do I feel comfortable when I imagine being the majority owner? 

There may be some other red flag, not mentioned in this checklist, leading me to reject a stock. Also, I may still buy a stock even when it violates a requirement mentioned above. I always look at the complete picture surrounding a stock.

There are no political or moral judgements behind any of my criteria. They are based on practical considerations. To focus on specific areas, I want to block everything else out. Otherwise, I will go crazy from the information overload.