Invest in creating an Investing checklist as it can save you from making fatal investment mistakes in life

Charlie munger said,

“You need a different checklist and different mental models for different companies. I can never make
it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life

Checklists in aviation and medicine aim to eliminate errors completely. They are critical since they deal with life and death situations—a minor mistake in a flight may lead to a fatal crash, In investing checklist slows down investing process thus taking impulse out of decision making. See how Harvard have developed this checklist for CEOs for big corporate decisions

Daniel Kaheman wrote

Form a checklist of criteria to consider before making a strategic decision. This can help to protect against overconfidence. For example, you might want to know the quality of the information given, whether or not there is a strong possibility of “group think” influencing this information, have any influential team members had a chance to persuade other team members, and also whether the chief decision-maker already has a strong stance on this issue. These are just some of the things you might want to consider before any major decision is made

A checklist will protect your investing decision from your own biases

So how do you start creating a checklist, use the building blocks approach

  1. Set a check list parameter  example could be  Is the business capital intensive ?
  2. Define the measuring factor that drives outcome for parameter example Use Earnings power box to ascertain how capital intensive is business
  3. Measure company on the factor – EPB box analysis ,Company is  in upper right box , therefore definitely not capital-intensive

In the above example, I used earnings power box report as a measuring factor because that works for me you change factor to say monitor asset turnover for last 10 years

Finally,

How many parameters do you need to create a successful investing checklist ?

The answer would change as your checklist becomes more and more exhaustive but start at a minumum start with 8-10 key parameters that you would want to measure and then adapt as you evolve as an investor

Download a basic checklist from Tankrich by  clicking any one of the  FB,Twitter or Google+ links below


Here is what’s you will see

11 parameters from my simple investing checklist

Checklist

Note each of these parameters have to be detailed out in separate tabs to come to a conclusion, In my sheet above I have added a tab on view on management with various sub parameters, you can add more

Stop reading

Start adding tabs for each of these 11 parameters (or more) to evaluate companies in your portfolio  and then rank them – this will help you to sell a company when you finding another attractive investing opportunity and don’t have surplus cash in hand

Share with us checklist when you have finished this exercise, I will publish a selection of the best checklist on Tankrich