Tag Archives: checklists



2015-06 ABBA Part I   Investing Checklist (Helpful)

2015-06 ABBA Part II – Bird in hand

2015-06 ABBA Part III – Brick House

2015-06 ABBA Part IV – Alignment of Interests

Actual pre-flight checklists http://freechecklists.net/

Have a Great 4th of July Weekend!

Investment Checklists-Adapt Them for Yourself. GOODHAVEN


Someone sent me a postcard picture of the earth.
On the back it said, “Wish you were here.” — Steven Wright

Investment Checklists 

We left-off here Last Lesson on Gross Profitability and Magic Formula and in that post, the next focus would be on investment checklists.  We have been reading Chapter 2: A Blueprint to a Better Quantitative Value Strategy in Quantitative Value (I will email the Book to new students if they are in the Deep-Value Group at GOOGLE. Go here: https://groups.google.com/forum/#!overview then type: DEEP-VALUE and ask to join.).

On pages 56 to 59 of this chapter the author discusses the case for a checklist. Atul Gawande in his book The Checklist Manifesto: How to Get Things Right argues for a broader implementation of checklists. The author believes that in many fields, the problem is not a lack of knowledge but in making sure we apply our knowledge consistently and correctly. 

The Quantitative Value Checklist

  1. Avoid Stocks that can cause a permanent loss of capital or avoid frauds and financial distress/bankruptcy.
  2. Find stocks with the cheapest quality.
  3. Find stocks with the cheapest prices.
  4. Find stocks with corroborative signals like insider buying, buyback announcements, etc.

Below are several books on checklists.

As students may know, I throw A LOT of information at you to force a choice on your part.   You have to focus on what material can be adapted to your needs. In the three books above, you will find many interesting ideas that may be helpful in learning how to build your own list.

The more experienced you are, then the shorter the checklist.  The point of a checklist is to be disciplined and not overlook the obvious while freeing up your mind for the big picture.   Yes, you check off if there is insider buying, but if insiders are absent, but the company has a strong franchise and the price is attractive, then those factors may be overwhelmingly positive.  You may ask, “Do I understand this business?” Then it may take weeks of industry reading to say yes or no.

Checklists are helpful, but only if you adapt them to your method.

Next, we will be reading Chapter 3, Eliminating Frauds in Quantitative Value. We are trying to improve our ability to build a margin of safety.


The Problem with Investor Time-frames

Note the dark line in the chart above representing the returns of the Goodhaven Fund. Two analysts/PMs split off from Fairholme and started in mid-2011. They had a big inflow in early 2014 and then some of their investors panicked as they vastly “underperformed the market.”  I don’t know if these managers are good or bad but making a decision on twelve to twenty-four months of data is absurd unless the managers completely changed their stripes (method of investing).  Therein lies opportunity for those with longer holding periods like five years or more.


Shareholder_Message_1114 (Some investors run for the door)





Investment Process–A Goldmine

A Reader’s Investment Process

Investment_Principles_and_Checklists_(Ordway)  (EXCELLENT!)  I hope readers are inspired to create their own like this gentleman. He synthesizes the best material from the great investors and then incorporates their principles into a checklist. This paper is also an excellent review of investment principles. Now the hard part is for YOU to CONSISTENTLY FOLLOW what you know you must do.

Good Reading for Value Investors

Quality of earnings: Earnings_Quality_–_Evidence_from_the_Field

Mark Seller’s Article on Becoming the NExt Buffett: So_You_Want_To_Be_The_Next_Warren_Buffett_–_How’s_Your_Writing_–Sellers24102004   Even the writer, Mark Sellers, who left the investment management business had trouble becoming the “next Buffett.” The volatility of owning one natural gas company help hasten his exit from the business.

A great blog post with links to Charlie Munger’s letters: http://rememberingtheobvious.wordpress.com/2012/08/03/charlie-mungers-wesco-letters-1983-2009/

Enjoy your weekend while I organize the VALUE VAULT.

Ten Ways to Lose Money in Wall Street (1930)

Ten Ways to Lose Money in Wall Street by the Market Cynic (1930)[1]

After many hours of toil and deep thought I have compiled a dependable guide for stock traders: Ten Ways to Lose Money in Wall Street. I shall not attempt to explain or qualify these precepts, realizing that my readers will doubtless follow them regardless of any advice, from any source, to the contrary.

  1.  Put your trust in board-room gossip.
  2. Believe everything you hear, especially tips.
  3. If you don’t know—guess.
  4. Follow the public.
  5. Be impatient.
  6. Greedily hang on for the top eighth.
  7. Trade on thin margins.
  8. Hold to your own opinion, right or wrong.
  9. Never stay out of the market.
  10. Accept small profits and large losses.

**Your Editor will add:

  • Never read the proxy before and after investing.
  • Never look carefully at the financial and financial footnotes before investing.
  • Never look at the terms and conditions of debt if the company has debt outstanding.

[1] Tape Reading and Market Tactics: Three Steps to Successful Stock Trading by Humphrey B. Neill (1931)