The 7 Red Questions

We operate a checklist which we call the seven ‘Red’ questions.

What are the 7 Red Questions?

These are the questions we ask of every single company we consider as a potential investment, addressing the different aspects of any distressed business that need to checked and double-checked.

The First & Second Question

  • Is the screen missing any liabilities (or assets)?
  • Are the profits misleading?

The Third Question

  • Is the business likely to suffer from structural change?

The Fourth Question

  • Do the profits turn into cash?

The Fifth Question

  • How would the business stand up to a financial stress-test?

The Sixth Question

  • How can we assess the quality of the business?

The Seventh Question

  • What are the ESG considerations?

The 4 Edges

Investing is a highly competitive marketplace and, if you want to outperform there, you will need an ‘edge’ over the competition. Fortunately, value investing offers the prospect of edges across four different areas.