Investment Checklist/Plan – Why It Matters

Surveys show that the majority of small savers and hobby-investors do worse than the market. Impulse buying, no advance research, little diversification, little knowledge, tips from friends, attraction to “lottery stocks” and other irrational choices are all reasons why returns are poor.

Much of this can be avoided by introducing a simple routine for your investments: a checklist and a long-term plan.

All pilots follow a checklist when they both take off and land their aircraft. The same thing happens if there is an error message in the cockpit: they bring up the manual to find the correct procedure.

If they mistakenly forget only one point, it may be enough to endanger both the plane and the passengers. The most important thing with a checklist is to prevent errors or omissions.

In tennis, there is an expression called unforced error, that is, losing a point due to one’s own fault and not the opponent’s possible excellent play.

Even the world’s best tennis players make lots of mistakes, it’s inevitable, but they spend a lot of time minimizing mistakes that are solely due to themselves.

If you play tennis against a wall, you probably know where the ball is returned. But against a player you do not know where the ball comes from. The same metaphor can be used in investments: you do not know where the market or where the stock is in x number of years.

Therefore, you need to have a plan and a checklist of your investments that takes into account unforeseen things.

At the same time as you make a plan and checklist, you should also go through all your investments afterward to learn from your mistakes and shortcomings.

It is clichéd that it is not a loss as long as you have learned a lesson. Most likely you have the most to learn from your mistakes, but also the winners can give you a lot of wisdom.

Important elements of an investment plan-

Listed below are four types of risk you should minimize and include in an investment plan:

1. Manager risk: Do you have enough knowledge to invest? How do you manage a good long-term risk-adjusted return?
2. Company risk: The company you invest in may fall in value. Have you done analyzes and studies that minimize the downside? Do you have a safety margin?
3. Market risk: The stock market goes in waves, up and down. How will your stocks move if the market falls or rises?
4. Behavioral Risk: You are often your worst enemy. Unfortunately, surveys show that many sell after large falls and buy after large rises. Can you avoid unforced errors?

The investment plan must be short but precise. The most important thing is that it makes you think about why you are investing in this particular stock so that you avoid impulse investments.