The Little Book of Investing Like the Pros

Chapter FiveStep V: Investment Decision & Portfolio Management Time to pull the trigger?

You have identified a compelling investment idea, vetted it, and now must make a decision—buy, short, track, or pass. But, first let's take a step back and review how we got to this point.

In Step I: Idea Generation, we provided a framework for systematically sourcing potential investments. You learned how to screen for ideas based on valuation, financial metrics, and various corporate events, including M&A, spin-offs, and capital return. You also identified key macro and secular themes, and the most likely beneficiaries.

In Step II: Identifying the Best Ideas, you trimmed the list of potential investments on the basis of our idea review framework and investment write-up template, provided at www.investinglikethepros.com. You learned how to perform preliminary research focused on developing an investment thesis, evaluating a business, gauging management quality, assessing risks, and analyzing a company's financials and market valuation. Based on this initial work, you decided whether or not to continue exploring the opportunity.

In Step III: Business & Financial Due Diligence, you performed deep-dive fundamental research. You developed a true understanding of the business model, especially its key value drivers and risks. On the financial front, you examined the core financial statements to determine how the company makes, grows, and spends its money. In short, you formed a view on how the ...