Why a checklist is essential to investors
Three unique checklists for serious long-term investors can transform your investments' strategy forever. Become a better investor by avoiding biases and ungrounded investments.
If there is only one element you take away from this post, it's this:
A checklist is a helpful tool that helps make sure your investment process is consistent and thorough, so you don't make costly mistakes.
If you want to learn more about the questions we ask in our checklist, continue reading.
Why use a checklist?
Investing is a complex process filled with emotional and cognitive biases. Even the most successful investors are prone to making mistakes when emotions like greed or fear take over. A checklist acts as a systematic way to combat these biases, forcing you to stay committed to your principles and investing strategy. It also makes it harder to overlook crucial details.
Imagine you're evaluating a promising new stock. The excitement of potential returns might lead you to gloss over the risks or ignore aspects that don’t align with your broader strategy. A checklist helps prevent this by making sure that every investment decision is logical and well-thought-out. It's a simple tool that helps you keep your investment process focused, helps you avoid making rash decisions, and reduces the chance of making mistakes.
Even the best investors used a checklist! Successful investors like Warren Buffett and Charlie Munger have long advocated the use of checklists. They understand that a thorough, systematic approach to evaluating businesses can mean the difference between success and failure.
Our TDI-Checklists
At The Dutch Investors, we've developed three separate checklists that help us filter out the garbage businesses from the potential multibaggers.
We use the following checklist:
Prescreening TDI-checklist. This checklist contains only 5 checks. The goal of this specific checklist is to filter out any bad business in a few minutes. Too much debt? Get rid of it. No skin in the game? I don’t want it. The prescreening checklist will get rid of 90% of all businesses.
Quick TDI-checklist. This checklist is after you’ve done some research and want to see whether it meets your criteria. It’s a bit more in-depth and usually takes a bit more time to fill in correctly. It contains 10 questions. You should take your time filling this in, since this will get rid of the other 5-8% of stocks.
Fundamentals TDI-checklist. After you have completed all of your research, you should complete this checklist. This is the last step before you can invest in a stock. Since this is the final checklist, it takes more time. This checklist ensures you have done enough research.
From the business model to the management, valuation, sector and industry, financials, and even your personal financial situation and biases. This final checklist has over 50 checks, and you can even add your own to tie everything together.
I love this! I have a terrible memory so I make checklists for everything include my investing process. 100% think is the best way not to miss anything!