Checklists
After a week that started with heavy losses on Monday, which included a drop of over 1,000 points on the Dow, the market rallied back and ended the week with modest losses. For the week, the S&P 500 was down just 0.04%, the Nasdaq fell 0.18%, and the Dow ended up down 0.6%.
These days, constant access to news and, maybe more importantly, other people’s opinions make it easy for one’s mind to ebb and flow about this investment or that investment—just as the stock market ebbs and flows. One way to possibly make better investment decisions is with a checklist to help you add more discipline and consistency to your investment process. As Jason Zweig wrote in an article back in 2013:
By building a checklist—a standardized set of questions you must answer before you commit to any investment decision—you can reduce the risk of making costly errors. The best way to do that is by looking at your past mistakes. That's true no matter how you invest, even if you don't buy individual stocks at all.
The idea, still surprisingly underused in the investment business, is adapted from hospitals and the airline industry. An itemized list of procedures and how to follow them, the surgeon Atul Gawande has written, can "hold the odds of doing harm low enough for the odds of doing good to prevail."
Checklists help fix one of the biggest flaws in the way investors make decisions: inconsistency.
An increase in uncertainty tends to create volatility, which creates opportunities to make good and bad decisions. In the quiet calm of early morning, late evening, or maybe after a long walk, it might be useful to get out a pen and paper and write down a simple checklist covering a few rules you’ll commit to adhering to during this next phase of the market and economic cycle.
“The fluctuating emotions and irrational behaviors governing human activity ensure that markets will always be inefficient and mispricings will always exist. But those inefficiencies will not be constant in number or magnitude. The availability of investment opportunity will remain a cyclical phenomenon, both ebbing and flowing. Moreover, in the complex dance of the market, where psychology mingles with economic and business fundamentals, today’s ebb can actually precipitate tomorrow’s flow.” —Seth Klarman
Tweets of the Week
In Case You Missed it…
My 8 Key Rules For Investing & Refining The Checklist Process | Guy Spier (video)
The Story of LHC Group by co-founder Keith Myers (video)
We Will Find You - by Adam Wilk
Bruce Berkowitz - Avoiding Disaster and Generating Returns While Doing So (video)
A Few Little Ideas And Short Stories - by Morgan Housel
These already cheap value stocks are on sale right now
Business Breakdowns Podcast: Siemens Energy: Winds of Change
How to Take Over the World Podcast: Nike Founder Phil Knight
A Letter a Day: Letter #206: Padraig Harrington (2023)
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