Columns AU – AX – Scoring
Cameron : Okay. Next we have column AT which is the sum of the scores. We’re adding up all of the score cells. In column AU we count the number of checklist items that got a score, ignoring the cells that have blanks. In column AV we come up with a quality score by taking the total score divided by the number of checklist items. And ideally, we want this to be higher than 75%. Why 75%, Tony ? Is there magic to that number?
Tony : Yeah, interestingly enough, that was something I used to look at, but it’s probably gone by the wayside now, because if a company scores less than that, I’ll still buy it if it’s cheap, which we’ll get to in a minute, when we multiply the quality score by the price-to-operating cashflow.
Cameron : Yeah. So that’s the last column. Column AW, where we give it a QAV score. This is where the rubber meets the road. We take the checklist score from column AV divided by the price-to-cashflow number, which was column N, and that will give us a number. If that number is greater than 0.1, it’s a buy. If it’s less than 0.1, it is not a buy.
Tony : Correct.
Cameron : You want to explain why 0.1 is the magic number there, Tony?
Tony : Sure. In the past when I had my final list of companies, I just had too many companies to process, so I had to create an imaginary cutoff line. 0.1 is just an easy thing to remember. And it’s also about where we start to have enough companies in our portfolio.