Wish List

A Wish List (also commonly known as a 'Watchlist') is an investor's curated collection of great companies they would love to own, but only at the right price. Think of it as window shopping for stocks. You've identified high-quality merchandise—businesses with strong fundamentals and durable competitive advantages—but you're patiently waiting for a sale. This is the cornerstone of disciplined value investing. Instead of chasing hot stocks or reacting to market noise, the wish list investor does their homework in advance. They analyze businesses, calculate their approximate intrinsic value, and decide on a target purchase price that includes a healthy margin of safety. Then, they wait. When the ever-emotional Mr. Market throws a tantrum and offers one of these wonderful businesses at a steep discount, the investor is ready to act decisively, armed with prior research and conviction. The wish list transforms investing from a reactive gamble into a proactive, business-like pursuit.

Imagine going grocery shopping without a list. You’re more likely to wander the aisles, grab whatever catches your eye, and end up with a cart full of expensive snacks instead of the essentials. An investment wish list serves the same purpose: it enforces discipline and preparedness. By maintaining a list of pre-vetted companies, you:

• Stay Rational: It prevents emotional, spur-of-the-moment decisions. When a market panic hits, you won't be scrambling to figure out what to do. You’ll have a ready-made shopping list of bargains.
• Are Always Prepared: Opportunity doesn't send a text message before it arrives. A market crash or a company-specific setback can happen overnight. With a wish list, you've already done 90% of the work and can act swiftly and confidently.
• Focus on Quality: The process forces you to think like a business owner, not a stock gambler. You're not just looking for a ticker symbol that's going up; you're looking to partner with outstanding businesses within your circle of competence.

Creating a wish list isn't about jotting down a few trendy company names. It's a methodical process of research and valuation.

Start by looking for exceptional businesses. What makes a business 'great' for a value investor?

• A Strong Business Moat: This is a sustainable competitive advantage that protects the company from rivals, allowing it to earn high returns on capital for years. Think of powerful brands, network effects, or unique patents.
• Competent and Honest Management: Are the leaders of the company good capital allocators? Do they act in the best interest of shareholders?
• Consistent and Predictable Earnings: You want a business you can understand and whose future is reasonably foreseeable. A lemonade stand is easier to predict than a biotech startup on the verge of a breakthrough.

Once you've identified a potential candidate, it's time for some fundamental analysis. This means digging into the company's financial health and performance. You don't need to be a Wall Street quant, but you should get comfortable reading financial statements and understanding key metrics. Ask yourself:

• Is the company consistently profitable? Look at its return on equity (ROE).
• Does it have too much debt? Check the debt-to-equity ratio.
• Is the stock expensive relative to its earnings? The price-to-earnings ratio (P/E ratio) can be a useful, albeit imperfect, starting point.

The goal of this homework is to arrive at a conservative estimate of the company's intrinsic value—what it's really worth as an ongoing business.

This is where the magic happens. Your 'buy' price is not the intrinsic value. Your buy price is the intrinsic value minus a margin of safety. This discount is your protection against errors in judgment, bad luck, or unforeseen problems. If you calculate a business is worth €100 per share, you might decide to only buy it at €60 or €70. This gap is what gives you a buffer and creates the potential for outsized returns.

Now, you wait. You monitor your list, keeping up with the companies' quarterly reports to ensure the business fundamentals haven't deteriorated. Most of the time, these great companies will trade at fair or expensive prices. But occasionally, Mr. Market will get overly pessimistic about a company, an industry, or the entire economy, and offer you one of your wish list companies at your target price. That's your signal to buy.

A wish list is a tool, not a sacred text. A significant danger is falling in love with a company on your list and ignoring new evidence that its business is permanently impaired. The world changes, moats can shrink, and great management teams can make terrible mistakes. Your wish list should be a living document. Review it periodically. If the reasons you liked a company in the first place are no longer valid, don't be afraid to remove it. The goal is to buy a great business at a great price, not to prove your original thesis was right.