Numerous investors [here and here] have highlighted the use of investment checklists in screening potential investments. Mohnish Pabrai likens the investment process to surgeries and flying airplanes and is inspired by Atual Gawande's book Checklist Manifesto. Bottom line - seemingly complex tasks can be broken down to simple ground rules. Breaking decisions over smaller bites consumes lesser mind space and avoids biases.
Smart investors make their own checklists and I was educated on this quite early on. Still, you only appreciate the process till the rubber meets the road. For example, I discovered Michael Shearn's book The Investment Checklist even before I started building my portfolio. When I read the book initially, I was able to go only so far. Most of what was written seemed obvious and mundane. There were some aha! moments, but without practice, I felt like I was indulging in intellectual stagnation.
In my own journey so far, only six months old mind you, I've already bought some stocks. Although I've tried to stick to the basics (such as reading annual reports in detail, performing independent valuations and buying with a margin of safety), I now feel the need for well-grounded rules. Most of purchases have come without any record of investment thesis. I know I will regret this later and let biases ruin my rational decision making if I don't indulge in making a checklist now.
I already feel animal spirits taking over me. The markets are on a downward trend following the Trump election and the demonetisation wave. The 'buy low, sell high' mentality drives me to jump into the market impulsively and buy more. However, without a sound understanding of my present holdings and almost no understanding of other businesses in the market, I feel intellectually incapable to act. Therefore, I am wary to make any more purchases till I build strong investment thesis for my present holdings. Making a checklist will not only screen my present holdings for possible errors, but serve as a template for future purchases. I think this exercise is well deserved and will serve me well in the long run!
For starters, I've decided to back to 'The Investment Checklist'. The next couple of posts will look at Michael's checklist in greater detail.
Smart investors make their own checklists and I was educated on this quite early on. Still, you only appreciate the process till the rubber meets the road. For example, I discovered Michael Shearn's book The Investment Checklist even before I started building my portfolio. When I read the book initially, I was able to go only so far. Most of what was written seemed obvious and mundane. There were some aha! moments, but without practice, I felt like I was indulging in intellectual stagnation.
In my own journey so far, only six months old mind you, I've already bought some stocks. Although I've tried to stick to the basics (such as reading annual reports in detail, performing independent valuations and buying with a margin of safety), I now feel the need for well-grounded rules. Most of purchases have come without any record of investment thesis. I know I will regret this later and let biases ruin my rational decision making if I don't indulge in making a checklist now.
I already feel animal spirits taking over me. The markets are on a downward trend following the Trump election and the demonetisation wave. The 'buy low, sell high' mentality drives me to jump into the market impulsively and buy more. However, without a sound understanding of my present holdings and almost no understanding of other businesses in the market, I feel intellectually incapable to act. Therefore, I am wary to make any more purchases till I build strong investment thesis for my present holdings. Making a checklist will not only screen my present holdings for possible errors, but serve as a template for future purchases. I think this exercise is well deserved and will serve me well in the long run!
For starters, I've decided to back to 'The Investment Checklist'. The next couple of posts will look at Michael's checklist in greater detail.
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