Here comes some thoughts about checklists, and why it might be a good thing to use one, but also on how to build your own and from were to get your inspiration.
The Cambridge Dictionaries Online defines a checklist as “a list of things that you must think about, or that you must remember to do.”
Actually, you don’t need to look up the word “checklist” in a dictionary to know its meaning. But I think that it’s always good to get a simple definition to read through and just look at.
Anyway, I didn’t really think a lot about checklists until I read the 1977 Letter to Shareholders written by Warren Buffett. In it Warren simply lays out the four things that Charlie and he look for when evaluating a business.
We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.
These four criteria captures pretty much everything one should consider when evaluating a business. They may not look like much at first, but there is a lot of sublevels in each of them.
What then is the best way to learn about the four points and their content? A good start is to read all letters to shareholders that’s been published so far. You’ll find them at Berkshire Hathaway’s homepage. All of them are great reads and I recommend everyone to read them.
These are some of the best business texts ever written for someone who wants to improve knowledge about business analysis and investing. And they’re available for free!
In my next post I will write about two books I have read about checklists. Until then, get inspired by Mohnish Pabrai’s presentation The Checklist.
Also, feel free to share your insights regarding checklist. Do you use an investment checklist? If you do, how do you use it and how did you compile it?