Uses and Misuse of Investment Checklists

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Uses and Misuse of Investment Checklists
<a href="https://pixabay.com/users/AnandKZ/">AnandKZ</a> / Pixabay

Investment Checklists: I recently had the pleasure of sitting down with Michael Shearn, author of The Investment Checklist: The Art of In-Depth Research, and managing partner of the Compound Money Fund. As Michael reminds us, many investors tend to make buy and sell decisions based on hunches, recommendations from other investors, or isolated facts. By doing so, the investment decision-making process becomes dangerous because not enough time is dedicated to thoroughly research the investment under consideration.

Uses and Misuse of Investment Checklists

Instead, as Michael Shearn points out, investment decisions should be based on understanding the value of a business through in-depth research. And an essential part of good in-depth research is a good investment checklist. However, as Michael points out, even investment checklists and diligent research are fraught with pitfalls. An obvious pitfall is commonly referred to as paralysis through analysis: losing oneself in endless data points that are irrelevant to the investment thesis.

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During our conversation, Michael Shearn revealed how to successfully employ checklists in one’s investment process and how to avoid the many misuses of checklists in investing. I’m pleased to share the following two excerpts below: one on the uses and misuses of investment checklists, the other on how to employ a checklist to successfully evaluate a company’s management. The full video of my conversation with Michael Shearn, including past case studies and a discussion of one of his favorite current investment ideas, is available in The Manual of Ideas Members Area.

Says Michael Shearn:

“What happened is when I first started investing I found that if a company put out a negative news release or the stock price dropped, I’d have a very bad reaction to it and I’d be running around like Chicken Little, the cartoon character, thinking the sky was falling. 

Full articoe on Investment Checklists via beyondproxy.com

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