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When I analyze stocks, my notes are structured and quite consistent between companies, which makes it easier for me to compare notes between companies and compartmentalize the information in my mind.
So instead of one long, amorphous note, I have nine major buckets in my single company note that I drop information into.
Each bucket is literally a section header with nested multi-level bullet points under it.
As I read more, I start linking and nesting information next to and under each other. (I keep all my notes in Obsidian, btw.)
The nine buckets are:
What: This is where I put everything about the business, what it does, how it makes money, its history, footprint, stakeholders, scale, and so forth.
Growth: Notes about recent growth and the reasons, guidances, and underlying drivers. This is also where I put notes about industry structure, market size, market growth, and peers/competitors. I want to know how the company grows and at whose expense.
Profitability: Notes about current and historical margins, and the moving pieces behind them. I disaggregate what’s happening above the gross profit line, what’s going on in SG&A, what’s driving cash taxes, the cost of debt, and more. I keep separate nested bullet points on each driver rather than one blended margin line that hides everything.
Reinvestment: Anything related to capital allocation in terms of capex, working capital, acquisitions, buybacks, dividends, debt paydowns, and more. I care less about what management slogans say about capital allocation and more about what has actually happened to cash over time.
Risk: Anything related to leverage, customer/supplier concentration, regulatory risk, tech obsolescence, corporate culture, key-person risk, barriers to entry and exit, macro, and more goes in here. The “kill list” of ways I can be wrong lives in this bucket.
Non-operating assets: Anything that’s not essential to the operating business, like excess cash, equity stakes, real estate, idle assets, and more. Accounting conventions can throw these off significantly, so I try to mark what I can to market. I typically focus on land and buildings. Opportunities often arise from opaque balance sheets misunderstood by the market.
Valuation: The bucket where I put my thoughts about three valuation levels: liquidation value, asset reproduction value, and earnings power value. I also put notes on potential catalysts and my running answer to “why the opportunity?” Rather than aiming for precision, I want ranges and sanity checks. (I’ll delve more into how I approach valuation in part 4.)
Alignment: Anything related to ownership structure, insiders, compensation, incentives, related-party deals, governance, and more goes in here.
Accounting: Here I put notes on idiosyncratic accounting quirks specific to the firm and its industry, and anything that distorts the economic reality of the business.