Tito's Blog

Go Checklists!

Applying boring checklists to the investment process works. “Airline captains”, or those investment professionals in venture capital, private equity or stock investing that adopt a checklist method in their investment decisions, have a better track record because they control better our brain biases and common misperceptions.

Sure enough, when Smart tracked the venture capitalists’ success over time, it became clear that the airline captains had by far the most effective style. Those investors taking the checklist-driven approach had a 10 per cent likelihood of later having to fire senior management for incompetence or concluding that their original evaluation was inaccurate. The others had at least a 50 per cent likelihood. The results showed up in their bottom lines, too. The airline captains had a median 80 per cent return on the investments studied, the others 35 per cent or less.

For sure it is a tough sell, but I believe that using a methodical checklist-based approach helps guide our primitive brain to make complex decisions.