Create an Investing checklist
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
Set a check list parameter example could be Is the business capital intensive ?
Define the measuring factor that drives outcome for parameter example Use Earnings power box to ascertain how capital intensive is business
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,
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Download a basic checklist from Tankrich by clicking any one of the FB,Twitter or Google+ links below
[l2g name="Basic Checklist" id="1077"]
Here is what's you will see
11 parameters from my simple investing 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