The Investment Checklist: The Art of In-Depth Research 1st Edition

This book is really useful and I have enjoyed it thoroughly, however, you will love it even more if you are a fundamentals oriented investor. I don't remember the author discussing it in his introduction, but the idea of checklists has been popularized by Atul Gawande in his fantastic book 'The Checklist Manifesto'. In the book he discusses how Mohnish Pabrai utilizes checklists as a means to prevent investment mistakes. It is from this background that the investment checklist originates.If you are a subscriber to the Manual of Ideas, then you will be a little more familiar with investment checklists and some of the uses and misuses. However, it is certainly a very accessible book for the professional and avid personal investor a like. There is one 3 star review on here from a individual/retail investor, and I don't blame him for putting 3 stars. It doesn't have the raw appeal of a Peter Lynch type book, but addresses a very specific part of the investing process and without a deeper understanding of all the other parts, putting it together may be a challenge.A couple of points that I would have liked to be more explicit in the book, however are:1) Explain to the reader that investment checklists are supposed to be obvious and simple, because it is precisely these obvious points that investors choose to ignore when they get into the most trouble (i.e. permanent loss of capital). A more accurate title, may have been 'How to Identify Investing Red Flags'. The use of the checklist is not that it is supposed to teach you something new (although it surely will), but to sharpen one's investing process.2) A mistakes section. Mohnish Pabrai's checklist has been built mainly from the investing mistakes of investment professionals he admires. So there is a specific point regarding peak earnings or operating leverage or foreign competition, which come from specific mistakes. E.g. Cort furniture was an investment mistake by Berkshire Hathaway and it was made because Munger forgot to take into account that Cort's earnings were being artificially inflated by the dot-com boom, as many new start ups were renting furniture. It would be good to have seen more points that were specifically based on real-life mistakes, rather than just where Shearn thinks they might be.3) A very minor criticism, but Shearn does repeat a few of the examples a few too many times. You will read a lot about Robert Silberman (strayer), David Gold (99 cent only store), Bruce Flatt (Brookfield). A few more range of examples to draw on would have been good.

I have to say this is a book that pushes my investing skill to a new level. If you are a short term trader that want to make some "quick money" in days or weeks this book probably won't help a lot. If you are a serious investor that cares about the fundamentals of the company you invest, then this book will teach you a lot.I am an O'Neil style investor. Originally fundamentals to me are just some numbers: ROE, Profit margin, EPS, sales growth etc. Although this did not prevent me from catching some big fish like LULU or ALXN, I did miss several opportunities due to a lack of deep understanding of the business. Every time there is a sharp decline on heavy volume with no news, I have no idea what to do and the only conclusion is some institutional investors are dumping shares which is usually not a good thing. As a result I was shaken out of positions that turn out to be bigger winners for several times, such as VRX and QIHU this year.After I read this book, I started to spend time reading 10-K and 10-Q which can give me a lot of insights of the financial health beyond those numbers. Based on the points in the checklists I produced my own checklist and feel more ease amid market fluctuation, because now I know the business beyond numbers.Some book reviewers say the book is too much for them and I partially agree with that considering we are busy and have full time job. Some points in the checklist are too "advanced" for me, meaning the data can not be acquired easily by individual investors. But most of information are contained in SEC filings. If you don't want to spend time understanding the business, why do you throw your hard earned money into it? There is no free lunch.

Overall, I thought the book was very interesting and well written. It did a nice job of helping people learn how to think about businesses from a strategic and competitive point of view. The one thing that would have made the book better would have been some discussion to tie the strategic analysis of the company to some valuation frameworks. There was some mention of what the author and his firm were paying for certain companies when they purchased the stock, but it was not a complete discussion of valuation and the related value investing concept of a margin of safety. With that said, I do think that the anecdotes included in the book were helpful and added good context.

Anyone wishing to utilize a disciplined method for investing should read this book by Shearn.Good investing mean avoiding mistakes and taking calculated risks. Identification of risk involvesdeep thinking about "what can go wrong?". This is where this book shines, since it forces youto adopt a structured approach of working through a checklist of the possible unknowns.Too many unanswered items? - Take a pass until you can complete the checklist.What I really liked about the book are the tons of real life examples of exactly what he means.You look at investor conference calls in a different way, as it has an exhaustive sectionon evaluating management and their responses. Are they honest? Are the overly promotional?What are they trying to hide? You see real life examples of both sides - the good and the bad ones.The book made me think of many situations in the past that were strong clues about excessive risk.Another useful aspect of the book is that it provides many outside sources (websites, etc) tocheck your facts. Investing in teen retailers? Shearn provides a number of free sourcesto verify and understand trends.I've no doubt that this book will make me better at researching a company.For anyone not employing a checklist - the Shearn checklist provides a great template to success.R. Michael KnippPrivate Investor