Importance of "Checklists" in Investing

About Mr. Naren:

Mr. Naren is the chief investment officer and executive director of ICICI Prudential Asset Management.

Investment Philosophy:

Mr. Naren is best known for his contrarian and deep-value picks; he avoids chasing hot stocks. As a contrarian over the years, he developed a knack for spotting neglected sectors and stocks before they become vogue. He believes that to pick out-of-favour stocks a fund manager should approach stock-picking with a mixture of top-down and bottom-up thinking.

- From Mechanical Engineering to Investing in stocks

Father of Mr. Naren was investing their money in public issues back in the 70s & 80s by watching his father investing Mr. Naren also got fascinated towards equity market.

Unique aspects of Mr. S Naren:

1. More than 30 years of experience in the Indian Equity market.

2. Deep Knowledge of Credit markets and how credit cycle interplays with the equity markets.

3. Enormous depth of reading material across the globe.

- “Checklist” Theory:

In this they have explained the backstory of how they started using checklists in their research process. While they were reading a book called “The checklist Manifesto” by Dr. Atul Gawande they got fascinated by this idea.

- Emotional side of Investing:

Markets are nebulous in the short run and there are emotions which play a role. There have been crises, Euphoria, Bubbles in the market and to identify at what stage of cycle you are in you need a checklist.

- Investing Mantra for Mr. Naren:

1. Whether there is Fear in the market?

2. How’s the Valuation?

3. What are the Flows?

For example: Whenever FIIs sell then you have to put money in equities because fear is rising. In the last 20 years, whenever FIIs have sold aggressively like in 1998, 2002, 2008, 2011 or in september 2016 there have been opportunities but if you don’t have a checklist then you might have missed those opportunities.

- Going Beyond “Checklist”

Using Checklists doesn’t ensure complete elimination of mistakes.You do make mistakes because markets behave differently, people in the markets behave differently. Using a checklist only helps to reduce the number of mistakes.

- Investing through Checklist

Story of how it started: Dr gawande is a doctor and they were explaining the uses of checklists by telling their story “how checklists made them make less mistakes”. Then some of the stalwarts of investing community started applying this checklist in investing and by seeing that Mr. Gawande wrote the book “The checklist Manifesto”.