I was recently reading about the value investor Howard Marks. I came across an investing checklist he once created. He likes to say that before he buys anything, he asks five questions:
1. Why should a bargain exist despite the presence of thousands of investors who stand ready and willing to bid up the price of anything that’s too cheap?Howard Marks
2. If the return appears so generous in proportion to the risk, might you be overlooking some hidden risk?
3. Why would the seller of the asset be willing to part with it at a price from which it will give you an excessive return?
4. Do you really know more about the asset than the seller does?
5. If it’s such a great proposition, why hasn’t someone else snapped it up?
While everyone has their own strategy for investing or trading, whether it’s YOLO’ing their own account or talking with a financial advisor, a checklist for each decision, whether to buy or sell, is never a bad idea. Patience is often rewarded. So is thoughtful thinking. A checklist can help you do both of those things.