Today I will share something that will be very useful for you. You will learn how investing mistakes are reduced when you use a checklist for investing to study an investment opportunity.
I have compiled a few checklist resources in this article. These have been helpful to me and I am sure you will put them to good use too.
What are checklists?
A set of questions or rules that apply to working or executing a procedure in a particular area, that one creates and keeps improving. Yes, it is a never ending process. As you learn continuously and market situations change, you have to keep updating the checklist and make it better.
Why do you need checklists for investing?
Investing is made out to be glamourous by some. It is somewhere between an art and science in reality. Since all of us cannot be artists there are advantages to using a methodical checklist-based approach.
- We do not miss critical points or questions that are important for the investing decision.
- We are less likely to be carried away by emotions like greed, overconfidence or impatience.
Mohnish Pabrai’s presentation on checklist-based investing
Mohnish Pabrai is a succesful fund manager based in the US who has shared this presentation.
He describes how different agencies like the Federal Aviation Agency in the US or hospitals/doctors use a checklist to reduce mistakes in their work. He then gives examples of extending the same logic of checklists to the world of investing.
Note: Sometimes Slideshare presentations do not show up properly for reasons unknown. If this happens, you can see the entire presentation by using the link given above which takes you to the Slideshare site.
Checklists in finance – An essential read
I highly recommend reading this article that appeared in the Financial Times on checklists in finance.
Mohnish Pabrai’s interview at the Value Investing Congress