Why checklists get a big tick from us

Many experts can shy away from making and using checklists as they see them as boring or perhaps even an admission of weakness – but why would you ignore something that helps avoid significant mistakes?


Roberta Barr

Roberta Barr

Research Analyst, Equity Value

The often irritating observation “It’s not rocket science!” has become something of a cliché whenever a task presents itself that is seen as being easy to accomplish. Which makes it all the more ironic that one aspect of rocket science itself is not exactly rocket science – even if it is absolutely vital to the success of the whole enterprise. We are talking about the humble checklist.

Humble or not, the checklist does take centre-stage in one of the books that sits in our ever-growing library, here at The Value Perspective. The Checklist Manifesto: How to Get Things Right (2011) by Atul Gawande highlights how checklists can help even experts avoid mistakes across a range of disciplines – from flying a plane to performing medical procedures, building skyscrapers to managing investment portfolios.

Too boring?

According to Gawande, problems can be simple, complicated or complex. The difference between the latter two is that a complicated scenario may involve a lot of steps but steps that are repeatable – for example, counting down to launch a rocket. In contrast, a complex scenario would be something like investment where external factors mean that, even if you do exactly the same things each time, the outcome can be different.

Many people – including, or perhaps especially, experts – will shy away from making and using checklists as they can be seen as boring and perhaps even an admission of weakness or fallibility. And yet Gawande points to numerous examples where checklists have helped prevent potentially fatal mistakes – whether it be in the operating theatre, say, or the cockpit.

In the happily less life-or-death world of investment, checklists can clearly also bring significant benefits. As Gawande notes of one value-focused investor’s process: “The checklist doesn’t tell him what to do – it is not a formula. But the checklist helps him be as smart as possible every step of the way, ensuring that he’s got the critical information he needs when he needs it.”

As far as we are aware, Gawande was not referring to anyone we know but, here on The Value Perspective, we need no persuading about the value of a checklist. Yes, they may well be a bit boring, more than a bit time-consuming and a tricky thing to admit to needing – but, as we discussed in Value investing skills #2, they can certainly offer investors an edge.

Furthermore, if value investors strive to be unemotional, logical and rational in their work, where is the sense in being emotional, illogical and irrational when it comes to challenging the status quo and embracing changes that can improve your process? Anything that helps to ensure a set and repeatable investment approach really should not be seen as a chore or a threat.

So it should come as no surprise to learn that we operate our own checklist, here on The Value Perspective – the bare bones of which are encapsulated in our seven ‘Red’ questions below. These are the questions we ask of every single company we consider as a potential investment, addressing the different aspects of any distressed business that need to checked and double-checked. Really, it’s not rocket science …

Our seven ‘Red’ questions

* Has anything been missed off from the company’s enterprise value?

* Have profits – that is, the company’s net operating profit after tax – been misrepresented?

* Is the company’s past a good guide to its future?

* Do the company’s profits turn into cash? 

* Is the company’s balance sheet good enough? 

* Is the business itself good enough? 

* Are there other risks to consider?

Source: The Value Perspective


Roberta Barr

Roberta Barr

Research Analyst, Equity Value

I am an investment analyst for the Global Value Team, having joined Schroders in 2016 as part of the graduate programme. After spending a year as an investment analyst for the Quantitative Equity Products team, I realised my affinity for the deep value investment mindset and joined the Global Value Team in 2017. Prior to working for Schroders I studied mathematics at Oxford University.


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The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.

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