investment checklist

Tips to Applying Behavioral Finance
• Be humble
– Diversify
– Minimize trading
– Admit and learn from mistakes – but learn the right lessons and don’t obsess
• Sell your mistakes and move on; you don’t have to make it back the same way
you lost it
• But be careful of panicking and selling at the bottom
• Don’t get fooled by randomness; profit from regression to the mean
• Be patient
– Don’t watch the screen (a watched stock never rises)
– Tune out the noise
– Make sure time is on your side (stocks vs. options; no leverage)
• Have written checklists; e.g., my four questions:
– Is this within my circle of competence?
– Is it a good business?
– Do I like management? (Operators, capital allocators, integrity)
– Is the stock screaming cheap?
• Don’t anchor on historical information/perceptions/stock prices
– Keep an open mind
– Actively seek out contrary opinions; find someone to be bearish
– Update your initial estimate of intrinsic value
– Erase historical prices from your mind
– Set buy and sell triggers
• Mental tricks
– Pretend like you don’t own it (Steinhardt going to cash)
– Sell a little bit and sleep on it