Most investors don’t lose money because they can’t model valuation.
They lose money because they let bad ideas survive too long.
They fall in love with stories.
They rationalize weak data.
They average down on hope.
I built this framework for one reason: to say “no” faster.
Before I think about upside, price targets, or position size, every idea has to survive 12 binary questions. If it fails early, I move on. No debate. No “maybe it comes back.”
This filter doesn’t help you find more stocks.
It helps you avoid the ones that quietly destroy portfolios.
Why Most Stocks Fail Before Valuation Matters
Valuation is where people like to start because it feels precise.
It’s also usually irrelevant.
A stock can be “cheap” and still be a melting ice cube.
A stock can be “expensive” and still compound for a decade.
Most bad investments fail on business quality, durability, or expectations long before valuation ever protects you.
That’s why my process runs in three stages:
Discovery – Is there even a reason to look at this?
Data – Is the business actually doing what the story says?
Direction – Is the market confirming or rejecting the thesis?
If an idea doesn’t clear Discovery, I don’t waste another minute.
DISCOVERY: Why This Exists as an Opportunity
These are the gatekeepers. Miss here, and the idea is dead.
1. Is the company misunderstood or mispriced?
If the market already loves it, understands it, and agrees on the narrative, the easy money is gone.
I’m looking for:
Confusion
Discomfort
Neglect
Misframing
If I can’t clearly explain why expectations are wrong, I pass.
2. Is there a clear catalyst or fear creating opportunity?
A catalyst doesn’t mean an earnings date circled on a calendar.
It means a reason expectations can change:
A business model inflection
Margin structure flipping
Temporary fear overwhelming fundamentals
If nothing can force the market to rethink the story, time works against you.
3. Does the business model have long-term durability?
I’m not asking if it’s trendy.
I’m asking if it’s structural.
Durability means:
Embedded workflows
Switching costs
Mission-critical usage
Recurring demand
If customers can leave easily or rebuild it internally, it’s not durable.
If you can’t confidently answer yes to all three Discovery questions, stop.
Anything wrapped in hope after this point is speculation.
Everything above filters ideas. Everything below filters capital.
DATA: Is the Business Actually Doing What the Story Claims?
4. Are revenues and earnings growing?
Growth doesn’t need to be explosive.
It needs to be real, repeatable, and explainable.
No growth, no thesis.
5. Are margins stable or expanding?
If scale isn’t improving profitability, something is broken.
This is where narratives go to die.
6. Is cash flow strong or improving?
Earnings are opinions.
Cash is truth.
If the business can’t self-fund over time, you’re underwriting external conditions.
7. Is valuation attractive compared to peers?
I’m not hunting “cheap.”
I’m avoiding overpaying for mediocrity.
Valuation doesn’t create returns — it limits mistakes.
DIRECTION: Is the Market Working With You or Against You?
8. Is the trend up on higher timeframes?
I don’t need to be early and wrong.
The primary trend filters ego.
9. Is the stock not overbought?
Chasing strength feels good.
It usually ends badly.
I want room for the thesis to play out.
10. Is it not a falling knife?
Bad stocks look cheapest right before they break again.
I let price stabilize before stepping in.
11. Does price action confirm strength or potential continuation?
Technicals don’t need to be perfect.
They just can’t actively fight the trade.
OWNER ALIGNMENT (The One Most People Ignore)
12. Are management’s incentives aligned with long-term owners?
This question saves more money than any spreadsheet.
I look at:
Founder-led vs hired executives
Stock-based compensation discipline
Capital allocation behavior
Buybacks vs empire building
Great businesses can still destroy shareholder value if incentives are wrong.
What a “No” Actually Means
A single “no” doesn’t mean the stock is bad.
It means it’s not actionable right now.
Capital is finite.
Attention is finite.
Patience is a weapon.
Most investors fail because they can’t walk away.
Final Thought
If you can’t answer these 12 questions clearly and honestly, you’re not investing.
You’re speculating and hoping the market bails you out.
This framework won’t make you popular.
It will make you disciplined.
And discipline is what compounds.
— Connor
Alpha Before It Prints
Next in the series: How to Tell If a Company Is Actually Misunderstood →
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