[Snitzer]

It was last April when I decided that now was a really good time to enter the markets. I did, and yes, I made a little money, but then, the village idiot could have made money in that run-up. But the easy money has been made, and maybe I could cash out with my modest gains, but it appears I'm hooked. In order to stay I need to reassess how I go about evaluating companies, before purchase, whilst holding and after sale. The plan is to devise a pre-purchase, or even a pre-watchlist, checklist, covering both fundamental and technical aspects of the company I've got my eyes on. I've a couple pages of ideas, some of which I'm sure will never see the light of day, but any comments/suggestions would be most welcome.

[DugDug]

There was an interesting article in the UKs FT paper about two months ago about investors using checklists and how they are often ignored, underused and yet a very valuable tool. I read the paper copy but I am sure you could find it online.
Pilots use checklists all the time and its proven that in doing so - safety is improved. After a while even though muscle memory will take over a lot of what happens in a normal checklist, mistakes will still occur.
Charlie Munger also has a checklist of things to look out for when investing in a company - this checklist involved assessing to ensure that he was not biasing his decisions in some way
Google "charlie munger bias checklist" it should be the first one that comes up.

In terms of what your checklist contains - thats up to you.

[ramora]

Thanks for the interesting thread...

In the last two weeks I read "The Checklist Manifesto: How to Get Things Right" by Atul Gawande. My first impression was that this book is just too big; checklists are simple. Right? Gawande is on a mission to make the medical world less dangerous and he has done a fine job.

He divides the activities we must complete with low error into those tasks that are:

Simple
Complicated
Complex

Gawande gives great examples on how extremely complex operations lasting several days in one case were accomplished via checklists. And, that as checklists have become standard practice the statistical results leave no doubt in its success.

From my notes:

Checklists help to distinguish between 'Right Knowledge' and 'Knowledge Application'.

In building construction in the mid 20th century the 'Master Builder' would manage all of the general contractors and work out the details. Today, building construction is too complicated for a 'Master Builder' approach but must rely on computer checklists combined with 'feedback loops' to communicate schedule and detail changes in real time.

Task Saturation: is one example that pilots have known from some time. Task tempo is so fast that missing a step may be fatal.

Task Expertise: Some emergencies are so rare that you do not want to rely on stale training and flawed memory to execute.

Task Change: When tasks change it is easier to republish a checklist than to retrain and educate the entire work force. He gave several examples of how the FAA will publish a safety change at it is proprogated throughout the airlines with hours. It is not an exception, but part of the process.

Good checklists:
5 to 9 items
Do not try to include everything
Checklists are either 'Do Confirm' or 'Read Do'

I have a 'start-up' checklist I use in the morning before the market opens and I can go through it faster than trying to remember if I have everything up and running without using a checklist. My evening 'preparation' checklist of news and market levels still needs more work.

I have also formalized my 'Emergency Checklists' with broker phone numbers and placed the checklist and URLs on my iphone.

I want to focus on trades instead of the mechanics of trading.

Trading is a business: mistakes cost money and more importantly time. I recommend the book if you have any interest in checklists.

Good Trading...

[Snitzer]

In no particular order, not thoroughly thought out, but something of what I'm thinking about. Shoot it full of holes, stomp on it, kick it around, bite chunks tear it all apart just please, add the Why.
Stock Checklist (Rough Version)
Picking a stock (company): Portfolio allocation/sector/where do we want to go today?
Diversify! Maintain a watched stable, become intimate with their performance patterns, be ready to take advantage of sudden moves. (I did that, one of my small successes: DRIV)
Maintain an indicator watch list; i.e. dollar ETFs, commodities, transports, energy, plastic packagers, etc.
Sector: Where is it? Going up? Down? Sideways? Market forces? Future direction? My current exposure/experience.
Develop stock screener chops, work with different screens, play, have fun.
Company: Market trend/is this company leading, following or stumbling about? Check competitors-always. Check institutional buying. Check industry relative strength (How?).
Technicals: Trend/patterns/support/resistance. Use my favorite indicators; BB, RSI, STO, MACD.
BUY THE F****** DIPS/SELL THE F****** PEAKS!!!!
Or buy and hold; whatever the strategy DuJour is.
Use intelligent trailing stops. Lots of noise within the trend set loose stops; a quiet trend then set them close. Let the stops work, upside targets can be exceeded with no loss of karma.
Fundamentals: Lots of stuff here; Revenue, profits, backwards, forwards, whatever. Then P/E, EPS, Dividends, Yields and Book Value. Visit Edgar, learn how to read (and stay awake while doing so) SEC filings.
Markets slow, no available cash heading towards your brokerage account? Paper trade, not as much fun but can be a learning experience.
Assess past perfomance (Of course, you maintain that Sold watch list, right?) and be prepared to relight an old flame.
Identify past mistakes (mine were too little of too many stocks, held for too short a time frame, and trying to trade whilst still deep in the grip of total ignorance.

[cuttshot]

Snitzer,

How long are you planning on holding on to these positions? Your holding time will really effect what is on your checklist. If you are thinking a shorter term trade like a few weeks to a few months then I would focus more on technical analysis. If you are talking about taking a position for an extended amount of time then the fundamentals could come into play.

I have found that most traders will eventually become either fundamental traders or technical traders. For me I focus on the technicals. The buy and hold markets based off of fundamentals are gone in my opinion. Being able to play the markets on the upside and downside is crucial in todays environment. The only way to do this is to watch the price action.

Cuttshot