CHAPTER 6Buy Good Companies: The Checklist

“If the path be beautiful, let us not ask where it leads.”

—Anatole France

I have spent three chapters examining good companies and fair prices. The idea is simple, but the details are complex. I want now to summarize the idea and process in a simple checklist.

Every investor should create his or her own investing checklist, no matter how he or she chooses to invest. As discussed extensively in his bestselling book, The Checklist Manifesto: How to Get Things Right,1 Atul Gawande wrote that checklists have been widely used in the medical and aviation industries because they simplify complex procedures and help doctors and pilots maintain their composure and discipline.

When US Airways Flight 1549 from LaGuardia Airport to Charlotte hit a large flock of birds and lost both of its engines, the first thing pilot Sully Sullenberger and his crew did was get out their checklists, according to Sullenberger's memoir, Highest Duty: My Search for What Really Matters.2 Humans being human, mistakes will inevitably occur. Checklist usage catches the errors, sets discipline and process, and helps avoid potential losses.

Hedge fund manager Mohnish Pabrai likens buying a stock to the takeoff of an airplane. Many successful investors have their own checklists to guide their investment processes, although they might not explicitly call them such. For example, Walter Schloss, the notable disciple of Benjamin Graham, averaged 15.3 percent compound return ...

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