We all periodically go to a dentist/general practitioner to validate our well being, also check our credit card statement to make sure they make sense- why should investing be any different ?!
As an investor we need to periodically do a 'health check' for the stocks we hold. If the health has got better we have an excuse to hold/add, If the patient needs medication -are the management up to it? .I mean that just holding the stock without any reason for doing so will not help your portfolio, also helps us to look back at our decisions and review the factors which made us to invest in first place.
Few points to check:
• Is the original investment logic still valid.
• Is the company generating adequate cash flow.
• Is the company is getting into areas which are unrelated diversification and reducing focus.
• Are the managers allocating capital rationally.
• Debt and tax levels.
• Profitability (ROE,ROIC) is it reducing/improving.
• Is the stock is valued much more that the business is worth..
You may have your own checklist but it has to based on price vs. value equation in mind. As Warren says -In investing, just as in baseball, to put runs on the scoreboard, one must watch the playing field, not the scoreboard.
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