The Nine-Question Stock Screen
The Buffett framework I used to find seven ASX stocks in 2022 — and what happened three years later
A few years ago, Jeff Bezos — at the time the richest person on earth — asked Warren Buffett a question that many people had probably wondered.
”Warren, your investment strategy is so simple and obvious. Why doesn’t everyone just copy it?”
Buffett smiled.
”Because nobody wants to get rich slowly.”
Most people want to get rich quickly. Many spend significant time and money trying. And most don’t succeed. Here’s the thing that doesn’t get said enough: getting rich quickly rarely works out. Getting rich slowly is almost guaranteed — if you own the right businesses and are patient enough to let compounding do its work.
There’s a bestselling book called The Millionaire Fastlane by M.J. DeMarco that takes the opposite view. The author argues — not entirely without merit — that the traditional slow-lane approach (save diligently, invest in index funds, wait 40 years) is a wealth formula that robs you of your best years. By the time you’re “rich,” you’re too old to enjoy it.
He has a point — if you start at 20 and wait 40 years, you'll be 60 before the payoff arrives. As someone approaching 50, though, I'd push back. I didn't save in my youth because people told me to enjoy life while I was young — which I did, and still do. I've seen plenty of sprightly 60, 70, and 80-year-olds who haven't seemed to have lost any enthusiasm for life. If I'd started the Get Rich Slow approach in my twenties I'd have a lot more money behind me now — money that I'd still enjoy just as much as when I was twenty, only now I could share it with my wife and kids.
He has a point about passive index investing. But this newsletter isn’t about passive investing or 40-year timelines. It’s about identifying genuinely exceptional businesses — the ones with durable competitive advantages — and buying them at fair prices. Done well, this approach can deliver meaningfully better returns than an index fund, and it doesn’t require 40 years. I know because I’ve been doing it.
The spreadsheet I built to run this screen is free for all subscribers. Subscribe below to download it.
How I started
In September 2022, I had about $22,000 sitting in the self-invest portion of my superannuation account. The minimum trade size was $2,000, which meant I could hold a maximum of seven stocks.
The big question was: what to buy?
Warren Buffett talks about a “punch card” approach to investing. Imagine you have a card with 20 slots — that’s all the investments you’re allowed to make in your entire lifetime. The constraint forces you to be ruthlessly selective. You don’t fire off your slots on hunches or tips. You wait for the ones you’re genuinely confident in.
I had seven slots. I didn’t want to waste a single one.
I’d just finished reading Warren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark. In it, they walk through more than 50 financial signals Warren Buffett uses when evaluating a company. I sat down and asked: which of these can I actually find on a free website?
The answer was nine. Nine metrics consistently available on financial sites — and together they painted a clear picture of whether a business had a durable competitive advantage. I built a simple spreadsheet — free to download (see below). I ran it across a list of ASX companies using eight years of data from MSN Money. (Most sites only give you three or four years of history. Eight matters, because consistency over time is the whole point.)
The screen turned up more than fourteen companies that passed most of the tests. I then used price as my guide, looking for companies trading at or below fair value. I bought seven.
No complex modelling. No insider information. No trading in and out. Just: find good businesses, pay a fair price, and hold.
Here’s where those seven picks are today, roughly three and a half years later:
Rio Tinto (RIO) +93.9%
JB Hi-Fi (JBH) +75.8%
Brambles (BXB) +46.8%
The Lottery Corporation (TLC) +16.3%
Car Group (CAR) +14.7%
Harvey Norman (HVN) +3.3%
Super Retail Group (SUL) -1.8%
Portfolio total (Sep 2022 – Jun 2026) +33.4%
Separately, through Sharesies, I hold smaller positions in Apple (+126.7%), Fisher & Paykel Healthcare (+66.1%), Hallenstein Glasson (+105.3%), Shaver Shop (+40.6%) and Briscoe Group (+16.6%) — all found using the same screen.
Not every pick was perfect. Two in the super portfolio are essentially flat. But the overall result is what the method promises: own good businesses long enough, and the compounding does the work.
I started this newsletter for two reasons. First, to save myself some effort — when friends and family ask about investing, I can point them here and to the spreadsheet instead of having to email people individually. Second, to consolidate my own notes, analysis, and results in one place.
The framework
To paraphrase Warren Buffett: buy wonderful businesses at fair prices, and hold them forever.
The two key ideas are ‘wonderful business’ and ‘fair price.’
Finding a wonderful business is actually the easier part. It’s largely objective — a business either has consistently high margins or it doesn’t. Earnings either trend upward or they don’t. Return on equity is either strong or it isn’t. My spreadsheet does this work systematically. I’ll share it with you in a future post.
Deciding on a fair price is the harder part. Charlie Munger put it well when discussing Costco — a business he loved and held for decades:
”I’ve always believed that nothing was worth an infinite price. Even an admirable place like Costco could get to a price where you would say that’s too high.”
He called it “a perfect damn company” — praised its culture, its future — but said that at 40 times earnings, he wouldn’t buy more shares.
That’s the discipline. A wonderful business is not a blank cheque for any price.
The nine questions below test the ‘wonderful business’ side of the equation. How to price it is the subject of the next post.
1. Is the gross profit margin above 40%?
Gross profit margin is the percentage of each sale a company keeps after paying the direct cost of making or delivering its product. A software company might keep 80 cents of every dollar. A steel mill might keep 15 cents.
Companies with consistently high gross margins tend to have pricing power. They’re selling something customers want badly enough to pay a premium for. That’s the foundation of a moat.
Threshold: above 40% = excellent. Below 30% = warning sign.
2. Are net earnings consistently growing?
Not just whether earnings are higher this year than last year — but whether they’ve been growing consistently over time. We look for earnings to be up in at least 60% of years over the period examined.
A company that earns $1 one year, $3 the next, $0.50 the year after that is not a compounding machine. It’s a lottery ticket. Buffett wants businesses where the earnings line goes from bottom-left to top-right, year after year.
3. Are net earnings at least 10% of gross profit?
This checks whether the company is actually keeping a meaningful slice of revenue as profit after paying all expenses — not just cost of goods, but staff, rent, marketing, administration, everything.
A business that generates $1 billion in gross profit but only $50 million in net earnings is spending 95% of its gross profit just keeping the lights on. That’s a fragile business.
4. Is SG&A overhead below 30% of gross profit?
Selling, general and administrative expenses — the cost of running the corporate machine — should be low relative to gross profit. Businesses with durable advantages don’t need to spend a fortune on marketing or administration to maintain their position.
Coca-Cola doesn’t need to convince you that Coke exists. McDonald’s doesn’t need to explain what a Big Mac is. That low overhead burden is worth more than it looks.
5. Is EPS trending upward?
Similar to the earnings growth check, but specifically for earnings per share — which adjusts for share dilution. A company that grows total earnings by issuing millions of new shares every year isn’t actually rewarding long-term shareholders. We want to see EPS rising in at least 60% of years.
6. Do current assets exceed total debt?
A simple balance sheet check. Can the company cover its total debt with the liquid assets it currently holds? A company that fails this test depends on continued access to credit markets to function. That’s a source of fragility.
7. Could the company repay its long-term debt within 4 years of net earnings?
Even if debt is manageable today, we want to know how many years of earnings it would take to retire it. Under 3 years is excellent. Over 5 years is a warning sign. This measures how much of the company’s future earnings are already spoken for.
8. Is return on equity consistently above 20%?
ROE measures how much profit the company generates for each dollar of shareholders’ equity. A business with 25% ROE is a compounding machine — it turns retained earnings into future earnings at a high rate.
This is perhaps the single most important metric. The businesses that make long-term investors wealthy are those that can reinvest profits at high rates of return, year after year.
9. Is capital expenditure below 50% of net earnings?
High capex businesses — airlines, car manufacturers, mining companies, utilities — must constantly reinvest enormous sums just to maintain their competitive position. That leaves less cash for dividends, buybacks, and growth.
The businesses Buffett loves can grow without spending much capital. A software company adding a million new users doesn’t need to build a new factory. That capital-light model is a compounding superpower.
How the scoring works
Each metric is a pass or fail. Seven or more passes = exceptional business. Five to six = worth investigating. Below five = likely a commodity business — proceed with caution or move on.
Passing the quality screen is only half the job. The second step is calculating intrinsic value and applying a margin of safety — only buying at a meaningful discount to what the business is actually worth.
Next post: I run Apple through all nine questions. The score is high. Whether the price is right — at 20x earnings, at 40x earnings — turns out to be a far more interesting conversation than I expected.
Download the free screener
This framework is based on the work of Mary Buffett and David Clark. It is a tool for organising financial information — not a guarantee of investment returns. Past results from my own portfolio do not guarantee future performance. This is not financial advice. The information in this newsletter is educational and based on publicly available data. It does not take into account your personal financial situation, goals, or risk tolerance. Always do your own research or consult a licensed financial adviser before making investment decisions.