Sometimes complicated problems have very simple solutions.
Stock investment guru and buy-and-hold advocate Brian Feroldi recently cited the 2006 example of an American anesthesiologist who created a new tool to save lives.
"It was tested in 100 Michigan hospitals over 15 months," Feroldi said in his newsletter.
"During that time, it saved 1,500 lives and reduced spending by $200 million."
Amazingly, the tool only cost 2 cents per use.
"In the history of medicine, there may never again be a more powerful, accessible tool to help the masses.
"And what was that magic tool? It was a checklist."
The list had five items to check off: washing hands, clearing the incision site, draping the patient, using surgical hat, gloves and gown, and applying sterile dressing.
And each piece of paper that these reminders were printed on cost just $0.02.
"Using the checklist cut infections from a 4% occurrence to zero.
"We're enamoured with complicated, high-tech solutions. But more often than not, eliminating unforced errors is where the real gains can be had."
The investment tool that could save your bacon
So what does this have to do with investing in ASX shares?
Feroldi insists that "returns can often be improved dramatically" by avoiding simple mistakes.
So he suggests going through this checklist just before hitting the "buy" button in your broking system:
- Is the company's gross margin stable or expanding?
- Is the company self-funding, or is it reliant on outside capital?
- Can you identify a durable competitive advantage?
"These three questions alone could eliminate 80% of the potential investments you spend your time researching," said Feroldi.
"It's up to you to spend the rest of that time getting familiar with the choices left."
Of course, everyone has different priorities, tastes, and investing styles.
Feroldi pointed out his newsletter colleague Brian Stoffel has nine items on his checklist, while he has many more.
But ultimately, they all serve the same purpose: to narrow down stock ideas and reduce investing mistakes.
"Over the long-term, eliminating these 'unforced errors' — and focusing your time on the investments that are truly worthy — can make all the difference.
"If you don't have an investing checklist, make 2024 the year you build one. Your future self [will] thank you."
