Building a research checklist

In simple terms

Pilots and surgeons use checklists not because they lack skill, but because even skilled people forget steps under pressure. Investors face the same problem: when excited about a company, it is easy to skip the dull questions, such as debt, related-party dealings or what the price assumes.

A research checklist is a written list of questions you answer for every company. Used well, it makes research more complete. Used badly, it becomes box-ticking.

A sample checklist

Questions that need an answer in words, such as "why do customers choose it?", force more thinking than those answered yes or no.

Deal-breakers and scored items

Not all items are equal. Separate them into two kinds:

• Deal-breakers: findings serious enough to stop the research, whatever else is true. Examples include evidence of accounting manipulation, as the red flags lesson explains, management that has misled shareholders, or debt the business cannot survive a bad year with.
• Weighed items: strengths and weaknesses that are balanced against each other and against the price. A slower-growing company can be attractive at a low enough price; a fast-growing one can be a poor investment at too high a price.

Some investors give weighed items a score, for example from 1 to 5. Scores can help comparisons, but they create false precision if treated as exact.

Using it well

1. Answer every question, including "I could not find out". Gaps are findings.
2. Write the evidence next to each answer, with the source.
3. Do the checklist before deciding, not afterwards to justify a decision.
4. Read the deal-breakers first to avoid spending days on a company you would never own.

The danger of box-ticking

Checklists can mislead when:

• Passing becomes the goal. A company that passes every item is not automatically a good investment, because the checklist cannot weigh price and future.
• Items are answered lazily, copying a number from a website without understanding it.
• New risks fall outside the list. Every company has something unusual; a checklist covers only what you thought of in advance.
• It feels like certainty. A completed checklist can create overconfidence, as the behavioural biases lesson explains.

Improving it over time

After each mistake, ask whether a checklist item would have caught it, and add one if so, as the reviewing mistakes lesson describes. Remove items that never change a decision; a checklist that grows forever stops being used.

Why it matters

A checklist turns a research process into a habit and protects against the most common errors of omission. It is especially valuable for the questions people least like to ask about companies they like.

Limitations

A checklist only contains what you knew to ask. It cannot judge the quality of answers, weigh unusual situations, or set the right price. It supports judgement; it does not replace it.

Common mistakes

• Treating a full pass as a buy signal.
• Filling it in after deciding.
• Using yes or no questions only.
• Never updating it.

Try it yourself

1. Copy the sample checklist and adapt it to your own approach.
2. Mark which items are deal-breakers.
3. Work through it for one company, writing the evidence and source for each answer.
4. Note which questions you could not answer, and where you might find the answers.