Santa’s Checking His List, Are You?

iStock_000022022719LargeIn my last blog, I wrote on the virtues of asset class diversification to mitigate risk.  More specifically, taking stock of your equity holdings and deciding how much of their value could be lost.  The goal was to assign a dollar value, instead of a percentage to measure risk.

Sticking with a similar theme, my latest reading of The Intelligent Investor[1], lead me to reflect on the importance of checklists in making investment decisions and reduce errors.  Working in conjunction with Clearview Wealth Management’s Chief Investment Officer, portfolio oversight is a critical component of my role as Chief Compliance Officer.  This doesn’t involve making specific investment choices but it does involve working to establish a useful list of decision criteria to help determine when to buy, hold or sell an investment.

Too often, individual investors allow subjective criteria play an outsized role in whether to buy, hold or sell an investment.  While instinct may have a place, a checklist of objective criteria should be employed to mitigate emotional bias and provide a higher level of consistency.  Checklists are an effective way to organize a large amount of information and facilitate a methodical review to arrive at a decision.  Checklists can include fundamental valuation criteria such as earnings and less tangible items like how protected a company might be against competition.

When considering where to start, think about past investment decisions that led to losses and develop questions that address the errors.  From there, weave in other questions and criteria from your favorite investors or research sources making sure to stick with questions you can answer.  Building a checklist with multiple questions from multiple sources will lead to a holistic approach to making a decision and hopefully lead to fewer mistakes.

If all this seems daunting, consider consulting with a professional advisor.  At Clearview Wealth Management, we enlist the aid of a checklist when making investment decisions.  It is prepared from multiple sources and used to facilitate Investment Committee discussion.  The right decision may not always be made but using a checklist ensures thorough review of the available information and a level of consistency we might not otherwise achieve.



[1] Some of the information used for this blog was sourced from The Intelligent Investor; WSJ December 14, 2013