How Checklists Can Help Investors

It is easy to drown in the flood of information available in the financial markets. There's always one more report to read, one more press release to peruse or one more chart to interpret. In such an environment, it's easy to get pulled off course; information intended to help you, can actually make it difficult to maintain a consistent investment process.

Unfortunately, the market rewards disciplined investing and often quickly punishes emotional, distracted or disorganized approaches. What's more, it's easy to forget discipline when things are going especially well or especially bad. And then there's just human nature – humans are fallible creatures and even the best find it difficult to remember or replicate what worked three or four years ago.

SEE: Stock-Picking Strategies

Accordingly, investors should seek out ways to stay disciplined and methodical when it comes to researching new ideas, maintaining an existing portfolio and exiting positions. One of the best ways to achieve this is the use of checklists. Just as airline and military pilots have used checklists for decades to eliminate avoidable accidents and produce better results, so too can investors use checklists to develop better and more consistent investment behaviors .

The Advantages of Checklists
Words like "disciplined" and "methodical" are going to show up a few times in this article, and for good reason. A methodical and disciplined approach means that investors are considering the full range of the possibilities and risks, practicing careful due diligence and performing the detailed research that often accompanies long-term investment success. To that end, step-by-step checklists help foster, support and reinforce that step-by-step approach.

Checklists also help investors avoid lazy mistakes or short-cuts. Many investors, particularly value investors, claim that there is a wealth of information in the details and footnotes of filings like 10-Ks. That's true, but the fact remains that investors often forget to go through every step and read all of that material. They certainly may mean well, and they may even think they have done it, but it's all too easy to forget in a hectic and busy time. In other words, a checklist ensures than an investor always does what he or she intends to do.

Checklists are also advantageous in that they leave a decision-making trail that can be modified and corrected with time. If an investment didn't work out, the investor can often see what went wrong and that may point to a necessary change in the process. Perhaps that investor ignored large insider sales or perhaps the investor failed to investigate what new products were coming out from rivals. Whatever the case may be, it can be a new item to add to the list. Just as airlines are constantly updating pilot checklists on the basis of experience (good and bad), so too should investors.

On the flip side, investors may also learn that they are being too strict or demanding; investors who see too many stocks succeed outside of their standards may need to revisit and revise those standards. If an investor can identify what works in the market, they can compare the qualities and characteristics of those stocks to the standards demanded by their checklists and see if they match appropriately.

Emotions are often the enemy of successful investors, and checklists can help sap the emotion from investment decisions. If nothing else, the methodical process of going through a checklist introduces a bit of tedium to offset those emotions and can allow a cooler head to prevail . The routine and ritual of going through a checklist can help preserve gains or avoid chasing bad ideas by not allowing investors to get carried away with momentum or hot stories.

The Disadvantages of Checklists
While checklists are useful tools and this is a pro-checklist article, fairness demands that some of the downsides and disadvantages of checklists be presented as well.

For starters, checklists can feed a "paralysis by analysis" - the idea that there's always just one more piece of information to find before an investment decision can be made. This is especially true in cases where checklists have become too long or too thorough over time.

Checklists may also provide a false sense of security. Checklists are a consummate example of "garbage in, garbage out" and if investors build checklists on the basis of trivial or incorrect views of the market, the resulting investment performance will be lacking.

Lastly, checklists can be emotionally painful. It can ding the ego or pride to realize that you cannot do it all and need to rely on refreshers. Likewise, some investors love the rush that comes with investing on whim and emotion, and checklists can feel like straightjackets. Moreover, checklists eliminate some of the excuses that investors may like to use to explain losses – a consistent and methodical approach doesn't really allow for investors blaming "shorts," hedge funds or other fictional evil-doers for their losses.

Steps to Build a More Useful Checklist
As there are so many different valid investment strategies out there, it is beyond the scope of a single article to offer the range of appropriate checklist permutations. Instead, there are some more general philosophies and approaches that can help investors create usable checklists for their own particular approach.

Above all, it is important to identify the key steps in the process and the key opportunities for a serious error. A fundamentals-based value investor, for instance, has to consider those financial footnotes, but likely has little reason to worry about chart patterns. Relying on technical analysis, though, may have to include a number of confirming or contradictory signals before coming to a final decision on a stock , while not worrying much (if at all) about the details of the company's off-balance sheet financing.

Checklists must also be brief. These are reminders and guides, not how-to manuals. Anything beyond a single page is likely to be too unwieldy to be practical, and investors are well-advised to create separate lists for separate tasks (like buying, evaluating current holdings and selling).

Physically using the checklist also seems to make a difference; printing it out and actually checking boxes seems to feed a different psychological process than just referring to a list on a screen. This, after all, is the major difference between a real checklist and the "mental checklist" that most investors claim to use. The investor has to make sure that their process demands that they go through each step and leaves a record of doing so.

Last and not least, checklists need to be consistently evaluated and revised. When something goes wrong, identify the cause and evaluate the checklist to see if it needs revision. When something goes right, the same rules apply. Not all mistakes are preventable, but it is important to identify those that are and make sure they do not reoccur.

The Bottom Line
Checklists are tools, not panaceas. If an investor can identify the aspects of an investment that indicate a possibility to outperform the market, it behooves them to make sure that they carefully evaluate every potential investment for those aspects and stay away from investments that do not have them. There is nothing sexy about checklists and most investors will find them to be tedious at first. As time goes on, though, and potential mistakes are avoided in lieu of real winners, diligent checklist-users are likely to find that this is a relatively simple and cheap means of boosting returns.

SEE: 4 Steps To Creating A Better Investment Strategy

More From Investopedia


Get stories like this on the Yahoo app and discover more every day.
Download it now.
  • Oil prices down on profit-taking after two-day jump
    Oil prices down on profit-taking after two-day jump Reuters - 12 minutes ago

    Oil prices dropped on Friday as investors took profits following a 7-percent rise in the last two sessions, amid doubts that OPEC's first planned output cut in eight years would make a substantial dent in the global crude glut. Brent and U.S. crude … More »

  • Foxconn's Sharp to spend $570 million on OLED panel production
    Foxconn's Sharp to spend $570 million on OLED panel production Reuters - 14 minutes ago

    Japan's Sharp Corp said it will spend $570 million on its organic light-emitting diode (OLED) screen business - one of its first major investments since it was taken over by Taiwan's Foxconn although the amount pales in comparison to efforts by … More »

  • Oil prices down on doubts over OPEC deal AFP - 21 minutes ago

    Oil prices fell in Asia Friday as doubts emerged over the long-term success of a surprise OPEC agreement to cut output and stabilise the oversupplied market. The Organization of the Petroleum Exporting ... … More »

  • $1 Coal Mines Turn to Jackpots as China’s Cuts Power Rally (1) Bloomberg - 30 minutes ago

    Stanmore Coal Ltd. bought the Isaac Plains metallurgical coal mine in Australia for A$1 in July 2015 from Brazilian miner Vale SA and Japan’s Sumitomo Corp. when the price of met coal, used to make steel, averaged the lowest in about a decade and … More »

  • Sharp says to invest 57.4 billion yen in OLED business
    Sharp says to invest 57.4 billion yen in OLED business Reuters - 32 minutes ago

    Japan's Sharp Corp said on Friday it will invest 57.4 billion yen in its organic light-emitting diode (OLED) business as part of a shift towards the production of displays for use in smartphones, automobiles and flat-screen televisions. The … More »

  • Hong Kong Stock Selloff Pares Best Quarterly Advance Since 2009 Bloomberg - 33 minutes ago

    The Hang Seng Index dropped 1.3 percent at the midday break, paring its gain since the end of June to 13 percent. Bank of Communications Co. led a measure of financial companies lower, sliding 2.5 percent. Property companies fell for a second day, … More »

  • Matrade expresses relief over OPEC's production cut decision Business Times - 35 minutes ago

    KUALA LUMPUR: The Organization of Petroleum Exporting Countries (OPEC)’s decision to cut oil production is a boon for the oil and gas (O&G) industry.Malaysia External Trade Development Corporation (Matrade)’s chief executive officer Datuk Dzulkifli … More »

  • Music school hits right note for Kabul's street children
    Music school hits right note for Kabul's street children AFP News - 42 minutes ago

    The 20-year-old used to sell chewing gum in the streets of Kabul, until he passed an audition at the Afghan National Institute of Music (Anim) and his life changed tune. Ahmad Sarmast, the school's founder, believes children deserve a better life … More »

  • SE Asia Stocks-Lower as Deutsche Bank woes spook investors Reuters - 51 minutes ago

    By Anusha Ravindranath Sept 30 (Reuters) - Southeast Asian share markets fell on Friday tracking Asian peers as concerns over the stability of Germany's largest lender, Deutsche Bank, prompted investors ... … More »

  • Alarm Bells Sound in New York as Duterte’s Audit Roils Mines (2) Bloomberg - 52 minutes ago

    The threat to shutter about three-quarters of the nation’s mines risks savaging the country’s reputation among investors, according to the head of a company whose operations face suspension. “I just came from New York, and investors are very … More »

  • China factories limp along, Japan inflation goes backwards Reuters - 55 minutes ago

    China's factory sector struggled to gain speed in September while Japanese inflation went backwards in August despite the best efforts of policymakers, underscoring the limits of stimulus in reviving world growth. Friday's unflattering figures … More »

  • GLOBAL ECONOMY - China factories limp along, Japan inflation goes backwards
    GLOBAL ECONOMY - China factories limp along, Japan inflation goes backwards Reuters - 59 minutes ago

    China's factory sector struggled to gain speed in September while Japanese inflation went backwards in August despite the best efforts of policymakers, underscoring the limits of stimulus in reviving world growth. Friday's unflattering figures … More »

  • Malaysia's closing tin prices for Sept 30 Reuters - 1 hour 2 minutes ago

    KUALA LUMPUR, Sept 30 (Reuters) - Following is a table of Kuala Lumpur tin market prices provided by a Malaysian trader. (Prices in $/tonne, and volumes in tonnes unless stated) Date KL Premium/ Spot Bid ... … More »

  • Yen's Stop Sign at 100 Signals Japan May Avoid Intervention (1) Bloomberg - 1 hour 9 minutes ago

    Japan’s currency has appreciated to within 0.1 percent of 100 three times since it last traded stronger than that level five weeks ago, and each time it has retreated. Traders say it is running into waves of sell orders, spurring speculation there … More »

  • This Alibaba app lets you ask strangers to deliver toilet paper
    This Alibaba app lets you ask strangers to deliver toilet paper Business Insider - 1 hour 27 minutes ago

    Shu Zhang/Reuters Jack Ma The joke has turned … Continued The post This Alibaba app lets you ask strangers to deliver toilet paper appeared first on Business Insider. … More »

  • US paper facing threats for endorsing Hillary Clinton
    US paper facing threats for endorsing Hillary Clinton AFP News - 1 hour 27 minutes ago

    A conservative Arizona newspaper is facing death threats and losing subscriptions after it broke with tradition by endorsing Hillary Clinton over Donald Trump for US president, a senior editor told AFP. The Phoenix-based Arizona Republic, the … More »

  • Get to Know the Exact Change Act
    Get to Know the Exact Change Act - 1 hour 32 minutes ago

    You’ve probably had to deal with the issue of paying for something with a larger bill only to be asked for a smaller one instead. In other cases, you’ve probably gotten candy as change because the store didn’t have any coins or smaller bills. To … More »

  • Tokyo shares down by break on Deutsche Bank worries AFP - 1 hour 39 minutes ago

    Tokyo shares fell Friday morning as Deutsche Bank's woes dented financial firms while exporters were hit by a stronger yen. The weak start followed a slump on Wall Street where Deutsche Bank sank nearly ... … More »

  • Extraordinary HDB designs
    Extraordinary HDB designs The Edge Property - 1 hour 41 minutes ago

    There is a natural tendency to expect less when it comes to the furnishing of HDB flats. The familiar “simple and minimal” design does not evoke feelings of a warm welcome. Some young homeowners whose properties are featured here decided to buck the … More »

  • Asian stocks lower on renewed worries about banking sector
    Asian stocks lower on renewed worries about banking sector Associated Press - 1 hour 43 minutes ago

    Asian stock markets were lower on Friday as investor sentiment was dented by overnight losses on Wall Street and renewed worries about the health of Deutsche Bank. KEEPING SCORE: Japan's Nikkei 225 slumped ... … More »

  • Asian markets track US losses on Deutsch Bank worries
    Asian markets track US losses on Deutsch Bank worries AFP News - 1 hour 44 minutes ago

    Asian markets tumbled Friday, tracking a sell-off in New York as worries about the future of German banking giant Deutsche Bank hammered financial stocks. … More »

  • Bursa caps Teck Guan surge Business Times - 1 hour 56 minutes ago

    KUALA LUMPUR: Bursa Malaysia yesterday capped the surge in Teck Guan Perdana Bhd’s share price at RM1.78 after the stock hit limit up for two consecutive days. The surge followed Teck Guan’s announcement of a solid results for the second quarter … More »

  • Fintech group C88 raises undisclosed Series B round led by Telstra Ventures
    Fintech group C88 raises undisclosed Series B round led by Telstra Ventures e27 - 1 hour 56 minutes ago

    Existing investors Monk’s Hill Ventures and Kejora Ventures also took part in the round, with many others participating Fintech company Compare88 (C88) today announced that it has raised an undisclosed Series B round led by Telstra Ventures, with … More »

  • EPF looking at diversification Business Times - 1 hour 56 minutes ago

    HONG KONG: Malaysia’s largest pension fund is looking to diversify its investment portfolios in a bid to boost returns, according to chief executive officer Datuk Shahril Ridza Ridzuan. The Employees Provident Fund (EPF) planned to invest more in … More »

  • 3 investment lessons from the House of Cards
    3 investment lessons from the House of Cards Truewealth Publishing - 2 hours 1 minute ago

    The political drama House of Cards – on Netflix at an internet connection near you – is about the fictitious rise to power in the American political system of ruthless politico Frank Underwood and his wife, Claire. Frank and Claire are fearlessly … More »

Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
to view quotes in your portfolios.


  • Most Actives
    Most Actives
    NamePriceChange% Chg
  • % Gainers
    % Gainers
    NamePriceChange% Chg
  • % Losers
    % Losers
    NamePriceChange% Chg

Market Data

  • Currencies
    NamePriceChange% Chg
  • Commodities
    NamePriceChange% Chg
  • Bonds
    TreasuryYield (%)Yield Change