My Investment Checklist

Posted on Posted in How to Improve Results

A few different readers have asked about checklists and whether I use one. I have started to recently, and have found it helpful. A year or two ago I heard Mohnish Pabrai talking about the Checklist Manifesto, and how he implemented his own checklist into his investment routine. Pabrai made an analogy to pilots, who go through a detailed checklist just prior to a flight. Using a checklist can help you catch something you didn’t check or didn’t think about. It can also make your investment routine more organized and efficient.

Mohnish didn’t publish his, saying that it would be more beneficial for one to develop his or her own. I would agree with this, because each investing style and process is somewhat unique. Plus, the process of building the list is beneficial because it gets you thinking about what you value when you buy a stock.

Nevertheless, I thought I’d share mine on the blog. This is really nothing special. And it’s not nearly as detailed as Mohnish’s 88 question checklist. It’s just meant to basically reaffirm my thesis and help me make sure I’ve covered the basics. Another difference I have with Pabrai is that my checklist is used after I’ve spent some time looking at the investment opportunity, but not before doing a lot of detailed research. I think he mentions that he runs his checklist right before making a “buy or not buy” decision.

So without further comments, here is the screenshot of my checklist. I’d love to hear any thoughts or recommendations, or if you have your own checklist, feel free to share/comment:

Checklist 1

Checklist 2

Checklist 3

Checklist 4

The basic idea behind my checklist is to focus on the three basic categories of risk: Valuation risk, Leverage risk, and Business risk. All risk can be traced to one of these three areas, and using a checklist can help you mitigate these risks.

Last Two Questions Are Key

The final two questions really help me stay focused on prioritizing investment opportunities. I think about the risk and the downside first, but once that is handled, in order to make money you still need upside. Asking the simple question: “Will this stock double?” has had a surprisingly helpful effect. It also allows me to toss aside mediocre opportunities so I can focus more on the best risk-reward scenarios. By the way, this question was also something I learned from Pabrai.

The last question is another very basic one, but again-it’s quite helpful. “Would I buy more?” It forces me to think about the fact that I’m buying a business and not just speculating on an increase in stock price. If the answer to this question is: “no” (assuming the thesis hasn’t changed), then you may want to pass on the investment.

There is no science to any of this. The idea is to simply implement something to get you thinking about everything that is important to you when you make an investment. I just started using a formal checklist, and I’ll probably add to this over time, including more qualitative questions, but for now, this seems to be helpful in organizing my thoughts and prioritizing opportunities.

10 thoughts on “My Investment Checklist

  1. excellent! i learn more from it. thank you. i focus on assset quality and if it can survive in tough time when i buy at depressed price.

  2. Yeah this checklist is just a tool to use to remind me of certain things. Some of the metrics here will not be emphasized in asset based investments, but the general idea is to check these things prior to making an investment.

  3. I like how you distinguish between business risk, valuation risk and leverage risk. While business risk is inherent, valuation risk(Overpaying even for e great business) and leverage risk(buying on margin or company itself using high leverage) can doom equity investments in sound business. Of course, leverage risk gives a decent upside in bankruptcy situations but these are scattered by and large.

  4. Hi John,

    I have made reading your blog part of my daily routine. I try to read as many pages as possible every single day. I cant explain over a short comment here, how much your ideas have made me narrow down my focus, in terms of education, time spent and efficiency. Thanks a million.

    I have another point to add to your check list question. Imagine you own the stock for a year and the price falls > “Would I invest here if I wasnt already invested”? I think this brutal question with oneself has a lot of potentially painful answers, although hopefully not.

    Michael, UK.

    1. Excellent point, and I’ve asked myself this question before also. Thanks for reading Michael, and glad you found the site useful.

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  6. Thank you for sharing John! It’s been nearly 3 years since you posted your original checklist, I was interested in learning how your checklist has changed over that time. Perhaps you can write a followup post. Thanks again, Jim

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