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Investing Checklists Will Save Your Portfolio » IceMaster: Re: Value Investing
Just Cost Me 10...
Oct. 25, 2010 » hschacht: Re: Jim Chanos On
U.S. Health-Care ...
» batbeer2: Re: Investing
Author:
A checklist saves lives.
Checklists will Save ...
» superguru: Re: BYD (1211:HK)
Jae Jun Before a planes takes off, the pilot must always go through a checklist to ensure that everything is rigorously
down 10% today
checked.
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» DocMoney: Re: General
Author Website I’ve had my checklist for about 2 years now and I felt it was time to go through it and improve upon it. Dynamics Stock Analysis...
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For long time readers and intrinsic value calculator users, you would have seen my initial checklist. On Why Buff...
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By the end of these questions, I will have an idea of what number to give to categories in the spider graph such as
below.
Problems with the Above Investing Checklist
1. Limited set of numbers and metrics

On the qualitative side, there isn’t much to explain. The criteria and cutoff points look pretty good. That’s only if
you’re looking for the same type of company for every investment.

E.g. The cases couldn’t identify that a company with low margins with high inventory turnover could be even more
effective than a high margin, low turnover company.

2. Too Narrow/Focused

By having setting specific standards, it was easy to forget other aspects like looking up CEO compensation, shares
outstanding history etc.

3. Wording

The wording of the case also made it difficult because it just requires a yes or no. It made it far to easy to just
answer based on my own guesses without performing the due research.

4. Not Universal

I found that the checklist was pretty lame against a company like KO or JNJ. I ended up skipping the entire
checklist.

Checklist Improvement
So the question is, how do I improve on this?

I’ll get to that next time along with the updated checklist.

Jae Jun
[www.oldschoolvalue.com]

Jae Jun is the author of Old School Value, a value investing blog dedicated to the Old School methodologies and
teachings of the investment greats such as Graham, Buffett and Fisher. The blog deals with finding intrinsic value,
fundamental stock analysis and special situations including spinoffs and merger arbitrage.

Rate This Article:

Rating: 4.7/5 (15 votes)

More by Jae Jun:

A Test of Graham’s Stock Selection Criteria - Sep 06, 2010
4 Stocks on My Watch List: MDT, JBSS, VIFL, DUCK - Aug 31, 2010
Durable Competitive Advantages through the Cash Flow Statement - Aug 24, 2010
Identify Durable Competitive Advantages through the Balance Sheet - Aug 24, 2010

User Comments:

1. JoeDaWealthManager says on Oct 26, 2010 at 4:35 AM:

Call Monish Pabrai and perhaps he will help you strengthen it.

Quote This Comment

Rate this comment:
Add Your Comment Rating: 4.0/5 (1 vote)

2. Batbeer2 says on Oct 26, 2010 at 8:39 AM:

A thought.....

Using the same checklist as a pilot does not make me a pilot.

 Quote This Comment
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Add Your Comment Rating: 5.0/5 (2 votes)

3. DocMoney says on Oct 26, 2010 at 6:22 PM:

I constructed a checklist as well... having read Atul Gawande's book. Yet, I am having a hard time following it
strictly. Sometimes, an item or two on the checklist will not be satisfied and yet I would buy the stock... It is also
almost impossible to find a company that fulfils every checklist criterion and is a bargain at the same time.

It is also very difficult to screen for and backtest checklists that have more than a few entries, and that have entries
that pertain to the investor (for example, psychological items) rather than the company.

Also, as Batbeer hinted, the act of checking the boxes does not mean one will do so correctly. Unless one read
Cialdini, one will not know about social proof. Barriers to entry, in particular, is one box that is tough to tick
correctly.

It seems to me that each investor should construct his or her own checklist, start with a few items that are familiar
to her/him, and add items as one learns from books and experience. Using someone else's, not properly
internalized, checklist is not likely to be productive. Also a checklist should be mercifully short, helping to avoid big
blunders, rather than try to account for every possible pitfall and fail due to intrinsic unpredictability of many
criteria.

Quote This Comment

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Add Your Comment Rating: 5.0/5 (1 vote)

4. Batbeer2 says on Oct 27, 2010 at 12:24 AM:

It seems to me that each investor should construct his or her own checklist, start with a few items that are familiar
to her/him, and add items as one learns from books and experience.

Yes

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