How a strategy is built

"It's more important what's on your inner scorecard than your outer scorecard. Some people get into a position where they're thinking all the time about what the world is going to think of this or that, instead of what they themselves think. If your inner scorecard is one you're comfortable with, I think you're going to have a pretty happy life."

It's more important what's on your inner scorecard than your outer scorecard. Some people get into a position where they're thinking all the time about what the world is going to think of this or that, instead of what they themselves think. If your inner scorecard is one you're comfortable with, I think you're going to have a pretty happy life.

A strategy brings together everything you've learned in this course into a few questions to ask yourself before buying any stock.

First filter, narrow the field: start from the screener and the composite score to find companies with solid fundamentals, not from the price or how much people are talking about them. A high composite score isn't a guarantee, but it's a systematic way to quickly rule out companies that almost certainly don't deserve a deeper look.

Second filter, valuation: among the companies that pass the first filter, look at the margin of safety - how far today's price is below your fair value estimate. Without an adequate margin of safety, even the best company can be a bad investment at the wrong price.

Third filter, your profile: among the companies that also pass the second filter, how much you buy and how you spread it depends on what you read in the previous two lessons - your time horizon, how much volatility you can tolerate, and how many different sectors you're spreading across. The same company can be a good choice for an aggressive profile with a long horizon and a bad choice for someone who needs that capital in two years.