Creating an Investment Worksheet - Part Five

We have covered all the metrics required for our investment worksheet in Parts One through Four. You can recreate the worksheet in Excel if you wish but it is downloadable for free in PDF on Jason Kelly's website. Here is what it looks like:

Courtesy of from his book The Neatest Little Guide to Stock Market Investing

Courtesy of from his book The Neatest Little Guide to Stock Market Investing

We have discussed all of these items in Parts One to Four. Now, once you have your worksheet set up, you need to start filling it in with the stocks you want to track and watch. You will start with a set of companies you are interested in and each time you come across a new company, you will analyze it and determine if it is better than one already on your list. We are not ready to buy quite yet! A few more steps before we are ready to hit the buy button and you will want to buy or sell at different times, more about that next week.

In addition to the numbers, you should also consider the competition the company you are evaluating is facing in its industry.  As Jason Kelly says, “You don’t want just any milkshake stand, you want McDonald’s in the 1960’s.” Finally, ask yourself questions about the company and do your research to find out the answers – Why is the price of the stock so high? Why is it so low? Why don’t they have cash flow right now? Of course, you will want to stick close to your metrics as they are proven stock measurements but in order to decide if one stock is leaving or staying on the list, you will also want to drill down into why the numbers are the way they are. Keep your research organized and current. Jason Kelly advises updating the information at least every quarter.

Now that you have a list coming together of the stocks you are interested in tracking and watching, you will move on to picking the best growth companies and the best value companies before making the move to purchase. Jason Kelly uses his Reasons and Limits Worksheet (R&L Worksheet) to accomplish this next step. This worksheet will help you keep things in perspective when you need to come back to why a stock is on your list and why you want to buy it or sell it.  This is also available for a free download on his site  and it looks like this:

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Let’s review the differences between growth and value stocks again: Growth stocks - often smaller companies just getting started on a growth trajectory, high earnings record, high relative strength and a low P/S are the key factors to consider. Value stocks - often large companies that have been beaten down in the market but are still good companies at the core, traditional measures such as dividend yield, P/E, P/B, P/S and P/CF are the measurements you want to consider with these stocks.

You can keep a R&L sheet on each stock you are looking at. First, decide if it is a growth or a value stock. Next, fill in what you like and then what you dislike about the company. Then you can move on to fill in why you would buy the stock and why you would sell the stock. As you can see from the above chart, Jason Kelly has provided some prompts for us in terms of additional factors we may want to consider. You may want to buy when the stock reaches a certain ratio on the basis that everything else is solid with the company and it is now time to actually make a purchase. Likewise, with respect to selling, you may want to have a ratio in mind (Jason Kelly uses the example of when the P/S doubles its current measure) at which point to sell instead of focusing solely on the price. The price could go up substantially but the company may still be on track for more growth at which point, you may not want to sell. We now have a great deal of information compiled and are ready to make some decisions!

Next week we will wrap up this worksheet series with a discussion of when to buy, sell and how to track your performance. 

***Top photo courtesy of Tools for Motivation on Unsplash