From Dan Ferris in the S&A Digest:

If you read Atul Gawande's Checklist Manifesto, you'll be entertained and you'll discover a tool few investors use, but ought to at least consider. It's a quick read, too, less than 200 pages.

The book is filled with stories about checklists saving lives and preventing disasters in the aviation, construction, and medical professions.

In the operating room, the first item on the checklist is for everyone in the room to introduce himself and say what his job is. Then, they all agree on exactly what the procedure is, including making sure they're operating on the correct side of the body, on the right organ, etc. After they're done, they count the number of sponges so they don't leave one in the patient.

The last story in the book is about a man whose vena cava, the main vessel returning blood to the heart, was accidentally torn during a routine surgery. The patient's life was saved by a pre-surgery checklist. The list included making sure there was enough blood available to keep him alive if the vessel was torn.

The book also contains a section on investors like Extreme Value reader and hedge-fund operator Mohnish Pabrai and his friend Guy Spier. Both men use extensive checklists to prevent them from making investment mistakes.

It makes sense for investors to use a checklist, because investing can be a subjective, complicated affair. The checklist can help you quickly handle tasks that, though dull and apparently easy to get right, might just save you from making a big mistake.

For example, every now and then, somebody buys the wrong stock because of a discrepancy in the name of the company or the ticker symbol. I remember this happening years ago, when I recommended a stock called Gold Fields. There were two companies by that name. The one I recommended did well, but some folks wound up buying the wrong one, which didn't do as well.

The most important thing on a value investor's checklist is an answer to the question, "Is there an adequate margin of safety?" If you can't answer with a resounding yes, you don't buy. I have a watch list of stocks I'll buy if they get cheap enough. They're all good businesses, but they're not good investments until the price is right... so I wait. If you're a momentum trader, you'll have a different checklist, but you should definitely think about using one.

If doctors need to check for those kinds of errors, you and I could probably stand to take an extra minute to make sure we're buying the right stock, among other basic aspects of investing.

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