An Investing Principles Checklist

The following excerpt is from "Poor Charlie's Almanack". It's a "checklist" of items to consider prior to making an investment.

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• Risk--All investment evaluations should begin by measuring risk, especially reputational.
• Incorporate an appropriate margin of safety.
• Avoid dealing with people of questionable character.
• Insist upon proper compensation for risk assumed.
• Always beware of inflation and interest rate exposures.
• Avoid big mistakes; shun permanent capital loss.
• Independence--Only in fairy tales are emperors told they are naked.
• Objectivity and rationality require independence of thought.
• Remember that just because other people agree or disagree with you doesn't make you right or wrong--the only thing that matters is the correctness of your analysis and misjudgment.
• Mimicking the herd invites regression to the mean (merely average performance).
• Preparation--The only way to win is to work, work, work, work, and hope to have a few insights.
• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.
• More important than the will to win is the will to prepare.
• Develop fluency in mental models from the major academic disciplines.
• If you want to get smart, the question you have to keep asking is "why, why, why?"
• Intellectual humility--Acknowledging what you don't know is the dawning of wisdom.
• Stay withing a well-defined circle of competence.
• Identify and reconcile dis-confirming evidence.
• Resist the craving for false precision, false certainties, etc.
• Above all, never fool yourself, and remember that you are the easiest person to fool.
• Analytic rigor--Use of the scientific method and effective checklists minimizes errors and omissions.
• Determine value apart from price; progress apart from activity; wealth apart from size.
• It is better to remember the obvious than to grasp the esoteric.
• Be a business analyst, not a market, macroeconomic, or security analyst.
• Consider totality of rick and effect; look always at potential second order and higher level impacts.
• Think forward and backwards--Invert, always invert.
• Allocation--Proper allocation of capital is an investor's number one job.
• Remember that highest and best use is always measured by the next best use (opportunity cost).
• Good ideas are rare--when the odds are greatly in your favor, bet (allocate) heavily.
• Don't "fall in love" with an investment--be situation-dependent and opportunity-driven.
• Patience--Resist the natural human bias to act.
• "Compound interest is the eight wonder of the world" (Einstein); never interrupt it unnecessarily.
• Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake.
• Be alert for the arrival of luck.
• Enjoy the process along with the proceeds, because the process is where you live.
• Decisiveness-When proper circumstances present themselves, act with decisiveness and conviction.
• Be fearful when others are greedy, and greedy when others are fearful.
• Opportunity doesn't come often, so seize it when it does.
• Opportunity meeting the prepared mind: that's the game.
• Change--Live with change and accept unremovable complexity.
• Recognize and adapt to the true nature of the world around you; don't expect it to adapt to you.
• Continually challenge and willingly amend your "best-loved ideas".
• Recognize reality even when you don't like it--especially when you don't like it.
• Focus--Keep things simple and remember what you set out to do.
• Remember that reputation and integrity are your most valuable assets--and can be lost in a heartbeat.
• Guard against the effects of hubris and boredom.
• Don't overlook the obvious by drowning in minutiae.
• Be careful to exclude unneeded information or slop: "A small leak can sink a great ship"
• Face your big troubles; don't sweep them under the rug.