The fifth idea to improve your investment process is to improve your search strategy. First, you want to increase the number of ideas you’re looking at. The more rocks you turn over, the greater your chances of finding a great investment.
Second, you don’t want to miss an obvious investment because you weren’t paying attention. That’s Buffett’s famous sin of omission.
I maintain four checklists to help me do this.
First, I have a checklist of great investors whom I track for new ideas. I limit the list to investors whose process and philosophy is similar to my own. I track their 13F disclosures and their investor letters, if available. Caution: any idea you find this way is only a starting point. You still need to do your own work, otherwise you won’t have the necessary conviction to buy a meaningful position and hold the stock through periods of volatility for big gains.
Second, I have a checklist of publications, forums and blogs that I follow for new ideas.
Third, I keep a checklist of my daily routine that includes basic screens I look at – like the 52-week low list – to make sure I don’t miss something.
Finally, I keep a growing watchlist of stocks I follow which includes a valuation estimate and a target price to buy the stock.
It’s easy to get away from this discipline because most days there’s nothing there. This is a common error with checklists. You get complacent and skip steps even when you remember them. For example, think of an airline pilot who always finds that a given gauge gives the correct reading. He may be tempted to skip the step of checking it. With investments, that might be the day an elephant decides to tiptoe by.
You can also improve if you focus your time on ideas that are obvious. If it’s too close to call, the investment may not be worth it. You’ll get better returns over time if you do this. You’ll also save yourself a lot of time.
Improve your search strategy and you will improve your results.