Rate Yourself…A 20-Question Scorecard for Stock Investors

Are you a good stock investor?

This Stock Investing Scorecard will help you understand what you do well, as well as suggest where you might pay the most attention to improving your investment practices.

Score yourself from 0 (worst) to 5 (best) on each of the following. Then check your total score at the end to see where you stand.

1. I believe that the market is rational over the long term and rewards sensible, intelligent investing. I also recognize that the market is essentially unpredictable over very short periods such as a day or a week.

2. I always maintain a fiduciary duty to myself. I never forget Buffett's Rule #1: Don't lose money.

3. I know my investment goals and have clear strategies to reach them. I have written them out, and I review them at least once per year. I adjust or amend them when appropriate.

4. I only invest in excellent companies with sound business models that I understand. If I cannot comprehend how a company makes money, I will not invest in it. That helps me avoid the Enrons of the world.

5. I always determine a rational price for any stock. I only buy at a fair or advantageous price.

6. I know that a 50% loss on a stock followed by a 100% gain equals zero. Therefore, I am very careful to avoid a large loss on even a single stock.

7. I manage my portfolio intelligently and consistently. This does not mean that I trade a lot, but it does mean that I pay attention. I keep track of the results of each individual stock investment, and I make strategic decisions about what to keep and what to sell. My goal is to let my winners run and to sell my losers.

8. I know that any investment in the stock market carries risk. I actively manage that risk. I am willing to tolerate some short-term variability in my wealth in order to gain the long-term benefit of beating inflation through stocks. I am not willing to tolerate significant losses.

9. Before making any move in the market, I do everything I can to stack the odds in my favor. I know that the best results come when I have an edge. The edge can be better information, better analysis, an advantageous price, better risk management, or a combination of all of them.

10. I read, analyze, and do my own thinking. I am always striving to improve my investment practices. I never buy a stock solely on a tip.

11. Whenever I am interested in a company, I write out its "story" in a few sentences. This includes the company's business model, its strategies, its prospects for sustainable profits, and (especially) its competitive advantages. If I can't understand it enough to do that, I don't invest in it.

12. I only purchase a stock when it is showing strength. I want each of my investments to get off to a good start.

13. I always look for companies with the best prospects for long-term earnings growth. I know that over the long term, stock prices follow corporate earnings.

14. I invest only in dominant companies. They have competitive advantages that will enable them to sustain earnings growth.

15. I never trust management which has demonstrated a lack of integrity.

16. I have fun investing. I don't overextend myself, and I never put money into companies that make or do anything I don't admire.

17. I am wary of companies with excessive debt, because I know that it is as hard for them to handle as it would be for me. The mere fact that other companies in the same industry also carry lots of debt is no excuse, because I know that every company chooses its capital structure. No solid company needs to be over its head in debt.

18. Although I do not demand that a company pay dividends, I do consider the regular payment and raising of dividends to be a big plus factor.

19. I run my investments like a business. I am dispassionate when making buy, hold, or sell decisions. I never "fall in love" with a stock. If it is a loser, I let it go. I do not over-hold any stock just waiting (hoping) for it to get back to even.

20. If I cannot find good investment opportunities, I am never afraid to have some of my "stock money" in cash. I do not feel the need to be "fully invested" at all times.

How did you do? The maximum score is 100. If your score is high, congratulations! You are following a sound approach to investment success.

If your total score is below 80, that raises a serious question whether you should be investing in stocks at all. The good news is that you can improve your knowledge and practices in every area considered.

Focus on any low-scoring areas. If you gave yourself 0, 1, or 2 on any question, that is definitely a red flag. Concentrate on improving your practices in that area. My experience is that improving in any one area can have a significant impact on your overall success in the stock market.

Of course, the best investors are good across the board. That should be your ultimate goal. Investors sometimes go wrong by skipping essential steps. They make "one-time" exceptions. Don't do that. Follow best practices and adhere to your own written strategies and tactics, all of the time.

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