In recent weeks, I’ve been asked by various Motley Fool Live Morning Show BFOFs (best friends of the Fool) to share my investing checklist. These are 20 questions I currently try to answer when deciding on an investment and they measure things like the business quality, growth, resilience, and even antifragility of a company. I say “currently” because I am constantly refining this checklist as I learn and grow as an investor.

Each of the 20 primary questions contains multiple sub-questions and sub-frameworks that make the checklist a robust investing tool. I adopted several of the questions on this checklist from the investors I admire and study most, including: Motley Fool founders Tom and David Gardner, Brad Slingerlend and Brinton Johns from NZS Capital, Dan Davidowitz, Damon Ficklin, Tucker Walsh, and Rayna Lesser Hannaway from Polen Capital, Rishi Gosalia from SF Value Capital, Michael Shearn from The Compound Money Fund, and Sean Stannard-Stockton from Ensemble Capital.

A pen sits on a notepad with a checklist that rests atop U.S. currency.

Image source: Getty Images.

Here are the questions I ask, broken down by category:

Business health (vital signs) and business execution (momentum) questions

  • Does the business have a strong balance sheet, preferably with net cash?
  • Can the business generate organic revenue growth powered by a large market opportunity and long-term tailwinds?
  • Does the business have rising or stable margins, with particular emphasis on gross margins and net operating profit after tax (NOPAT) margins?
  • Can the business generate high (or increasing) returns on invested capital (ROIC) and growing earnings and free cash flow (FCF)?
  • Does the company have a medium (or lower) risk profile?

Management, business model, competitive advantages, and ESG questions

  • Does the company have a unique business model or is there something else unique about the business that is hard to replicate?
  • Is the company driven by a mission beyond profit maximization for shareholders?
  • Is the business led by a Mount Rushmore CEO with high inside ownership?
  • Does the business have a product or service that is relevant and in high demand?
  • Does the business have recurring revenue and/or pricing power?
  • Does the company take a stakeholder-first approach to value creation? In other words, does the business treat its employees, customers, suppliers, community, and the planet well? And does the company create an equal amount (or even more) value for its key stakeholders as it does for itself?
  • Is the company trying to solve an important problem?
  • If the business suddenly disappeared, would the world be set back five, 10, or even more years?

10-bagger potential questions

  • Is the business committed to innovation and adaptation?
  • Does the company’s product or service fundamentally change the way we work or live?
  • Does the business reflect what I think the world will look like in the future?
  • Does the company’s product or service save the customer time or money?
  • Does the business provide optionality?

Valuation questions

  • Is the business trading at a sane valuation?
  • What is the opportunity cost for my capital? Is this new investment more attractive than buying more of what I already own?

This checklist influences both my stock picking and my portfolio management (or position sizing), but it does not preclude me from buying shares of businesses that I want to own but don’t score high on the checklist.

I buy larger positions in companies that score high on my checklist and I buy smaller positions in companies that don’t presently score high on the checklist (but that I deeply admire and have high hopes for the future) or that score highly on the checklist but are trading at what appear to be very high valuations.