A Checklist Can Make You a Better Investor


In discussing how his company responded to last week’s engine failure on flight 1380, Southwest Airlines CEO Gary Kelly was quoted by The Wall Street Journal as saying, “Everybody has a checklist.”

Checklists have been shown to work across a variety of fields, including aviation, health care, construction and, yes, investing. Value investors Guy Spier and Mohnish Pabrai are known for their use of checklists. The basis for Pabrai’s checklist is the mistakes he and other great investors—including Warren Buffett and Charlie Munger—have made. Pabrai includes everything he needs to consider when analyzing a company on his checklist. chart

A checklist will not magically make you a better investor, but it will help. A checklist is a means for reminding a person to follow a disciplined process. It details every step that needs to be taken so nothing is unintentionally overlooked. For example, an investment professional discussed in Atul Gawande’s book, “The Checklist Manifesto: How to Get Things Right” (Metropolitan Books, 2009), requires his staff to check off that they’ve read the footnotes to a company’s cash flow statement. Another item on this investor’s checklist is to confirm that the statement of key management risks—found on a company’s 10-K filing with the U.S. Securities and Exchange Commission (SEC)—has been read.

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Highlights from this month’s AAII Journal

AAII Sentiment Survey

Pessimism fell to its lowest level in six weeks. A decline in optimism kept bullish sentiment below its historical average for the ninth consecutive week and the 10th time in 12 weeks. More about this week’s results.

This week’s results:
  • Bullish: 36.9%, down 0.9 points
  • Neutral: 37.5%, up 4.5 pointsBe
  • arish: 25.6%, down 3.7 points
Historical averages:
  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.

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The Week Ahead

It will be another busy week for first-quarter earnings with 143 members of the S&P 500 index scheduled to report. Included in this group are five Dow components: McDonald’s Corp. (MCD) on Monday; Apple Inc. (AAPL), Merck & Co. Inc. (MRK) and Pfizer Inc. (PFE) on Tuesday; and DowDuPont Inc. (DWDP) on Thursday.

The Federal Open Market Committee will hold a two-day meeting starting Tuesday. Rates are expected to be unchanged. The meeting statement will be released at approximately 2:00 p.m. on Wednesday. (The CME’s FedWatch Tool currently assigns a 93% probability of a quarter-point hike being announced at the following meeting in June.)

Elsewhere on the economic calendar, March personal income and spending, the April Chicago Purchasing Managers’ Index (PMI) and the March pending home sales index will all be released on Monday. Tuesday will feature April motor vehicle sales, the April PMI manufacturing index, the Institute for Supply Management’s (ISM) April manufacturing index and March construction spending. The April ADP employment report will be released on Wednesday. Thursday will feature March international trade, preliminary first-quarter productivity data, March factory orders and the ISM’s April non-manufacturing Index. April jobs data, including the change in unemployment and nonfarm payrolls, will be released on Friday.

One Federal Reserve official will make a public appearance: Vice Chair Randal Quarles on Sunday, May 6.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!

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