On Checklists

July 19th, 2015 by Potato

Several beta readers suggested that I close out The Value of Simple with a checklist. It sounds like a great idea, and I took several runs at the problem. However, if you’ve read the book then you’ll know that it does not end with a checklist. The issue is that making a good checklist is hard, and a checklist doesn’t really fit the problem at hand.

A checklist should not be an algorithm in disguise. I could have ended with a flowchart or bulleted list to summarize the steps in planning, investing, and managing it all for the long term, or a checklist to cover all those steps. It could have been a nested checklist (and I had a few decent drafts of those), with big check-boxes like “make a plan” under which would be a separate checklist with items like “do you want to leave an inheritance/legacy” and “do you have a plan B?” or “Investing” with “have you filled your TFSA first?” and “are you diversified?” However, that was getting just too big and complicated, had too many questions as opposed to action items or steps, and in some ways could basically be replaced with the single sentence “in lieu of a checklist, run down the table of contents and place your tick marks.”

Checklists are best for helping to prevent stupid errors, especially where you might forget something, or do some steps out-of-order. So it’s quite difficult to fit them to the overall plan-invest-manage process: it’s too big, and spread over too much time. It’s also a lot of decision-making and assessing your own feelings, rather than mechanical steps to take. For many of the things people may forget, the written plan and calendar reminders I suggested should work better than a checklist.

There are aspects where I could see checklists being handy, basically for isolated parts of your investing process. For example, when buying or selling an ETF there are lots of little things to remember, like setting a limit order, the good ’til date, factoring in the commission, rounding down for the number of units, recording the transaction, making sure that the purchase fits your long-term plan, etc. — smaller, more focused checklists for these tasks might work really well, and I’ve already had some ideas on the back burner that I’ll try to turn into drafts for you to look at.

Why didn’t I pound them out first and include a half dozen in the book? Largely because I’m going to need to test them out on a few people, and try to identify where the common errors may be — and whether a checklist actually helps or makes things worse. What errors do you think people would need a checklist to avoid and in which areas?

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