4 Questions I Ask Before Every Investment (That Most Investors Skip)
The framework that's kept me from countless losses
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After analysing hundreds of investment decisions — both winners and losers — I've found that asking the right questions matters more than having the right answers.
These four questions have saved me from more mistakes than any financial model ever could.
The Costly Truth About Investment Decisions
Most investors obsess over the wrong questions:
"Is this the bottom?"
"What will earnings be next quarter?"
"Is a recession coming?"
These are unanswerable guessing games.
The best investors — from Buffett to Munger to Lynch — ask fundamentally different questions.
Questions that are actually answerable.
Questions that reveal truth rather than invite speculation.
I've distilled their approaches, combined with painful lessons from my own mistakes, into four essential questions that form the backbone of every investment decision I make.
Question 1: "What Has to Be True for This to Work?"
This might be the most powerful question in investing, yet almost nobody asks it.
Before buying, list every assumption you're making:
The business must maintain margins above X%
Management must allocate capital rationally
The competitive moat must remain intact
The industry structure can't dramatically change
Then ask: How many of these could be wrong and I'd still make money?
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Question 2: "Who's on the Other Side of This Trade?"
Every buy has a seller. Every seller has a reason.
Understanding why someone's selling can reveal hidden risks — or massive opportunities.
The Framework:
Forced Sellers = Your Opportunity
Index deletions
Fund redemptions
Tax loss harvesting
Margin calls
Informed Sellers = Your Warning
Multiple insiders selling
Smart money exiting
Industry consolidation away from the company
Question 3: "What Would Make Me Sell?"
If you can't answer this before you buy, you'll make emotional decisions later.
Write down your sell triggers in advance:
Always Sell:
Broken thesis — Your original reason for buying no longer exists
Capital destruction — Management pursuing value-destroying M&A
Structural decline — Permanent impairment to the business model
Never Sell:
Stock down 30%
Missed quarterly earnings
Scary headlines
Question 4: "How Will I Know If I'm Wrong?"
The most dangerous investors are those who can't admit mistakes.
Before investing, identify specific markers that would prove your thesis wrong:
Quantitative Signals:
ROIC declining for 3 consecutive years
Market share loss of >10%
Debt/EBITDA exceeding 3x
Qualitative Signals:
Key executives departing
Acquisition strategy changing
Customer complaints trending up
Pro tip: Set calendar reminders to review these markers quarterly. Don't rely on memory.
Your Implementation Guide
Step 1: Create Your Question Template
Investment: [Company Name]
Date: [Today]
Q1 - What Must Be True:
- •
-
Q2 - Who's Selling & Why:
- •
Q3 - I Will Sell If:
- •
Q4 - I'm Wrong If:
- •Step 2: Test It On Your Current Holdings
Take your largest position
Answer all four questions honestly
If you struggle, you might not know the business well enough
Step 3: Make It A Habit
Never buy without completing the framework
Review answers quarterly
Update as you learn more
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The Compound Effect
Here's what could happen when you use this framework consistently:
Year 1: You avoid 2-3 obvious mistakes
Year 3: Your pattern recognition improves dramatically
Year 5: You develop an intuition for quality
Year 10: Your returns compound from avoiding the losers
As Charlie Munger says:
"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."
These questions don't make you brilliant.
They keep you from being stupid.
And in investing, that's 90% of the battle.
If you like the way we think and want to see how we invest, subscribe here and become a paid subscriber to see the stocks we invest in and with our personal reason behind each position.
You can get a 20% lifetime discount here if you are interested.
Until next week,
Dom
Founder & Chief Investment Officer
Schwar Capital
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Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.
Frameworks and checklists are game-changers