THE INVESTMENT QUALITY CHEAT SHEET

Separating Real Businesses from Hype, Headlines, and Excitement

Most people approach investing backwards..

They start with the ticker.
They start with excitement.
They start with price.

But the question that actually makes investing easier is not:

“What should I buy?”

It’s:

“Why is this a business worth owning?”

A great investment is not about catching everything that runs. It’s about owning companies that survive competition, execute consistently, and compound value quietly over time.

This cheat sheet gives you a decision framework for evaluating businesses from both an operator lens and an investing lens. Beginners benefit because it explains what actually matters. Seasoned investors benefit because it focuses on durability, economics, and expectations instead of hype.

PART I — THE BUSINESS

1. Understand the Core Model

Start with the real world, not the stock chart. Ask three simple questions:

• What problem does this company solve?

• Who pays them?

• Why do they keep paying?

These three answers reveal a lot fast:

• Demand — Is there real need?

• Value chain position — Where do they sit in the ecosystem?

• Customer dependency — How sticky is it?

If you can’t explain the business in plain language, slow down. Confusion is usually a warning sign, not a challenge to prove yourself clever.

2. The Revenue & Growth Engine

Revenue answers one question: “Is the business selling more over time?”

Look at:

• Year-over-year revenue growth

• Segment-level growth (if available)

• Organic vs. acquisition-driven growth

• Pricing power vs. volume growth

Two quick rules:

• High revenue growth without pricing power = fragile

• Low revenue growth with pricing power = durable

3. Profitability & Operating Leverage

Revenue without profits is just activity. Key markers include:

• Operating margin trend

• EPS growth

• Contribution margin

• Unit economics (when disclosed)

Operating leverage is the sign of a model that scales. A company with strong unit economics but temporary losses is often misunderstood by beginners. A company with weak unit economics and optimistic narratives is often misunderstood by experts.

4. Balance Sheet Strength

A weak balance sheet can turn a good business into a forced seller during downturns.

Check:

• Debt-to-equity

• Interest coverage

• Liquidity ratios

• Cash runway (for earlier-stage companies)

When interest rates rise, weak balance sheets break before weak narratives do.

5. Cash Flow

Cash flow is the difference between a business that chooses to grow and one that must borrow to grow.

Free cash flow answers:

• Can they fund expansion?

• Can they pay dividends?

• Can they buy back shares?

• Can they survive rough cycles?

Earnings can be adjusted. Cash is harder to fake.

PART II — VALUATION

A great business can still be a terrible investment if you pay perfection-level pricing for it.

Valuation answers: “What expectations are already priced in?”

Useful lenses:

• P/E (Price-to-Earnings Ratio)

• P/S (Price-to-Sales Ratio)- Earlier in maturity curve

• PEG (Price-to-Earnings-to-Growth Ratio)

• Free cash flow yield

• EV/EBITDA (Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation, and Amortization)

Ask:

• Is this priced for reasonable growth or flawless execution?

• Does valuation make sense relative to peers?

• Does valuation make sense relative to its own history?

Valuation isn’t about finding “cheap.” It’s about finding a margin of safety—room for error when reality doesn’t match the dream.

PART III — COMPETITIVE DURABILITY

This is where experienced operators and long-term investors spend their time.

Competitive durability asks: “Can this business defend its economics over time?”

Look for moats like:

• Switching costs

• Network effects

• Scale advantages

• Brand loyalty

• Regulatory edge

• Cost leadership

• Patents/IP

A fast-growing business without a moat is just R&D for the market leader.

PART IV — MANAGEMENT & CAPITAL ALLOCATION

Businesses are run by people, not spreadsheets.

Evaluate management on:

• Track record

• Communication transparency

• Strategy consistency

• Insider ownership (skin in the game)

Then evaluate how they deploy capital:

• Reinvestment

• Buybacks

• Dividends

• Acquisitions

Good capital allocation compounds quietly over years. Bad capital allocation destroys value the same way.

PART V — MARKET CONTEXT & TREND

The market gets a vote.

Trends and sentiment matter—not because they predict the future, but because they reveal how investors are currently pricing risk.

Check:

• Price trend direction

• Relative strength vs the index

• Volume confirmation

• Moving averages (50/200-day)

Buy-and-hold doesn’t mean buy blind. Timing won’t make a bad thesis good, but it can make a good thesis easier to sit through.

PART VI — THE THESIS TEST

Before you hit buy, pressure-test your reasoning.

Ask:

• What assumptions need to hold for this to work?

• What could break this business?

• Does this require perfect conditions?

• Am I buying understanding or excitement?

• Is my return thesis based on compounding or rerating?

A “thesis” that only works in bull markets isn’t a thesis. It’s momentum.

PART VII — THE FILTER

Great investments usually have:

• Real business model

• Growing financial engine

• Durable competitive advantage

• Sound balance sheet

• Rational valuation

• Competent management

• Market support (or at least not full resistance)

Hype usually relies on:

• Narrative > numbers

• Momentum > economics

• Excitement > execution

• Forecasts > evidence

• Perfection > resilience

FINAL LENS

You don’t need to catch every runner. You don’t need to time every spike.
You don’t need to buy whatever’s trending.

You just need to avoid:

• obvious losers

• fragile businesses

• and overpaying for excitement

That’s how portfolios compound:

Quietly. Intentionally. Over time.