A checklist you can use for any investment….

I was running to the office today when I realized that my Oyster card (the prepaid card for the London tube system) wasn’t in my handbag. A few minutes of mad-dash searching revealed no card . Now Amara, my two year old, is in her ’let’s rummage through everything and trash mummy’s hand bag’ phase. Soon the Oyster card was found amongst the dinosaur jigsaw puzzle pieces and I was on my way.

Here’s a picture of Amara pretending to be a well behaved girl who doesn’t upend her Mother’s careful checklist…..

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Thank goodness I always use a mental checklist, the mnemonic POWK, before I step out the door.

POWK -- Phone, Oyster card, Wallet, Keys.

It’s a mini checklist to get me out of the house knowing I have the essentials that I need to get through the day.

An interesting book called the Checklist Manifesto by Atul Gawande describes why checklists should be mandatory in most professions. In early flight in the 1950’s there were many plane crashes and too many deaths to make an airline industry viable. The US Army conducted an analysis of why the rate was so high and figured out that most fatal crashes were due to pilot error. Even experienced pilots would forget one little thing and then KAPOW! A system of checklists was instituted for flights and the air crash rate went to nearly zero, making the airline industry possible.

It’s surprising to me how many professional investors don’t use checklists --- they go by gut feel or invest in things that present themselves in front of them. What I have observed reading the investment process of the superstar investors is that the most powerful investors in the world are devoted users of thorough checklists before they invest.

At my workshop last week the feedback I received was that the checklist for any generic investment was one of the most useful parts of the talk.

I created a worksheet of this checklist in .pdf format. If you would like me to email you a copy, just send me a message. The barebones explanation follows:

1. Effort + Monitoring

How much work will this investment take? How much time per month will it take to monitor?

If you buy a house for rental income, it takes months to find a place, reach a deal, prepare the house, find a renter and make sure they pay rent each month. Buying a mutual fund on the other hand can be achieved in a few seconds online and hopefully the fund manager will monitor the investments wisely for you.

2. Lockup

How long am I committing my money for? What’s the earliest I can get it back?

When you invest as an angel in a startup, your money is locked in for years. A share of a company on the other hand can be bought or sold anytime.

3. Diversification

Do I own a lot of this type of investment already? Am I over-concentrated in any country, industry or asset type? This is probably the most important part of the checklist and really deserves a few books written about it. In the UK people often use windfall money from an inheritance to buy a rental property…. BUT their jobs are dependent on the UK economy, the value of their house is dependent on the UK economy, so does it make sense to put more of their eggs in the same UK basket?

4. Liquidity

How easily can I get this money back if I need it?

If you’ve lent a friend $100,000 for her startup, asking for the money back will probably mean the closing of the startup. A share of Apple on the other hand can be sold off easily. A share of a small unloved company facing hard times, will be harder to find a buyer for.

5. Floor

How much of this money can I lose? What’s the worst case scenario?

Say you’ve put money into AirBnB. If they have a bad patch, since they only “own” data and software, your investment could plunge substantially. On the other hand if you buy a share of a company like Hilton, even if management completely fails, there will still be residual value in the land and buildings of the hotels they own.

6. Price

Am I paying to much for this? Am I paying a fair price or a low price?

London house prices are booming. How much higher can they get? You want to buy at a fair valuation and not assuming prices will forever keep going up.

7. Fees

How are the people selling me this investment incentivized. Our our interests aligned? What part of the profits will be eaten up by fees?

Fees on fees on fees on fees. The financial industry runs on fees and it makes sense to take a long look at where you will pay out in fees over the years.


Fear of missing out. Is there something about this investment that feels pressured or I’m trying to impress someone with or keeping up with what my neighbors are doing?

We had dinner with friends the other night who own a oceanside property in Australia perfect for oyster farming. Their neighbors are investing in the local oyster company so our friends have decided to do so as well. It sounds like a good long term investment to me, but always keep in mind if you’re doing something to keep up with friends and neighbours… that’s how Bernie Madoff found his victims.

Thanks for reading…