Conditions to add to Punch card
How the business works (Main business operations). Make sure it is deep within your circle of competence.
Key competitors (How they work and their strategy) + Industry dynamics + Opportunity
What problem they are addressing (Customers) and how this stands out from other competitors.
Key risks and materiality of those
Management Strategy and Incentives
Be able to value with strong conviction in your assumptions.
Portfolio Construction using the Punch card
Number of stocks in portfolio at one time is a maximum of 8.
Maximum position size ~25% for any one stock.
Only purchase additional shares when you are certain the price offers a 30% IRR.
Therefore let cash accumulate if no stocks offer 30% IRR.
Maximum P/E to pay is 15x
Maximum Growth rate assumption for any stock is 15% P.a.
Fair Multiple at 1.5x Growth rate and allow 10 years for it to revert.
Removing a business from the punch card (Frees up 1 box).
The business goes private or gets acquired etc.
The reason you added it is proven to be faulty.
Reasons for selling a stock.
Sell if the IRR falls below 10% (LT Market average) and there is no better alternatives.
If a better alternative exists above 2x the hurdle rate and the current opportunity is below the alternative by 15%+