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It’s a remarkable thing that one of society’s most useful inventions is still the humble checklist. It’s remarkable because humans generally are really terrible at following procedures. We get bored. A computer, on the other hand, is really good at following procedures. That is pretty much all a computer ever does. And their rate of error is much lower than humans.
In an increasingly complex world with specialization in every corner of society, we have gotten used to divide problems up into pieces. Therefore, we all pretty much agree that checklists are a very necessary tool in the world. Airliners would not be able to fill their seats if passengers thought they hadn’t ticked every box before each flight. The same goes for construction – or surgery.
But the problem is: we all tend to think that checklists are important for other people to follow. We know that we don’t make mistakes – obviously, that goes without saying – but other people are infinitely stupid and so it is a really good idea that they are forced to make doubly sure.
We think we’re mentally prepared to take the right action all the time. And we tend to rely on optimism when planning ahead and thinking through how – and how fast – future problems will be solved.
But that’s a planning fallacy.
The reality is that all sorts of unknowns creep in and the goal sometimes escapes us for avoidable reasons. Errors in communication, disturbances, and inconsistencies in preparation are just a few examples that can be responsible for such fatalities as forgetting a simple, obvious detail.
Sometimes, processes simply become too long and complex, and expertise in any field is not enough to fight it. Even super-specialists make mistakes in their field. The remedy lies in the humblest and simplest of techniques: the checklist.
As Atul Gawande writes in The Checklist Manifesto:
Under conditions of complexity, not only are checklists a help, they are required for success.
If you landed directly on this page, you can find our Decision Levels framework here.
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A checklist is not meant – nor is it at all necessary – for every situation. If that was the case, everything would quickly turn into bureaucratic nightmares.
No, checklists are for comprehensive tasks and hard problems.
At Junto, we don’t like comprehensive tasks that are out of our circle of competence. There are way too many options and opportunities in the world to spend time on such things. And so, we try to focus on problems that are important and knowable. If both aren’t the case, the problem simply doesn’t reach the last level in our Decision Levels framework.
When I say important, I mean really important. Many things are knowable but not really important that we decide on all the time. But some things are really important. Managing capital is really important and so we use checklists for our investments. Putting written words out into the world is really important and so we use checklists for our writing.
When dealing with hard problems that we have the ability to solve, we want to focus on reducing the rate of error. And for that, checklists do a marvelous job.
But reducing error is just one aspect of solving problems and it might not always be the most optimal thing to do. We also need insights. And for that, we need creativity and aptitude.
Hence, it’s important to recognize that while checklists are sometimes crucial, they do not deal with being creative. We need both.
If this fact is not recognized, writing checklists can easily become self-defeating. A checklist is not an instruction manual, and it isn’t supposed to provide one with all of the steps necessary to do anything as an expert. In fact, a checklist should be crafted from the assumption that the person using it is an expert already. Checklists can’t fly airplanes.
The idea is that as long as we’ve covered the error reduction part, we can focus on what lies on top of it.
An improperly specified checklist is more a hindrance than a benefit. And like a poem, a checklist is not an easy thing to write well.
It must be comprehensive; leaving out the things that aren’t necessary, but making sure to include what is.
It must not be too cumbersome, or it loses efficiency.
It must also not be authoritarian, or it loses its discipline.
It must turn people’s brains on rather than off.
It must be efficient, to the point, and easy to use even in the most difficult situations.
A checklist like that is not a bit easy to write in one go.
And so, efforts should be made to test and refine it through constant iteration, trial, and error. Consequently, to be able to write a good checklist, one has to be able to admit to making mistakes through first-hand experience.
Furthermore, different situations require different checklists even within the same domain. For example, in investing, we use different criteria and weightings of those criteria for different companies. It’s not a rigid process and we have to change it all the time.
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Conclusively, the ultimate purpose of a checklist is to ensure that one has done all that really must be done – that, if it hasn’t been done, then all hell will break loose.
On that cheery note, here are Junto’s main (as in non-exhaustive) checklists for our two main important endeavors: stock investing and writing.
Psychology
Business Tenets
Governance
Risk
Valuation
If you would not be forgotten, as soon as you’re dead and rotten, either write things worth reading, or do things worth the writing.
Message
Communication
Language
Organization
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I hope you enjoyed reading the process of our decision-making process at Junto Investments. If you didn’t go through the levels consecutively, you can go back to the first page here.
If you’ve got any thoughts or tips to share regarding our process, please write to me at oliver@junto.investments.
To your lifelong success,
Oliver Sung
Research Analyst
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