How Making Lists Can Help You as a Stock Investor

by | Nov 10, 2015

If you want to buy a stock, there’s an app for that. But there should also be a list for it: a catalog of investment criteria that you check before you decide to buy or sell.

In her professional and personal inquiry into the value and importance of list-making, Listful Thinking: Using Lists to be More Productive, Highly Successful and Less Stressed, Paula Rizzo, an Emmy-Award winning television producer, writes emphatically that “life is easier with a list.” She makes the case that list-making can help you become more productive at work, allow you more free time for personal projects and help boost your self-esteem. It can also make you a better investor.

Pick a Strategy and Make a List

There is a wide range of investment strategies, from value investing and emerging market-focused investing to highly speculative distressed-asset investing to flipping contemporary art. Certainly, many investors gravitate toward strategies with which they’re familiar. But before you pick which strategy is right, you should write down a list of guiding questions such as “What do I want to accomplish?”, “How much money am I willing to invest?” and “How do I obtain the knowledge to invest appropriately in this asset class?” These are basic philosophical questions, but they will help you determine why you are investing in the first place.

After you pick a strategy, it helps to develop a checklist of criteria so that you can better screen possible investments. “A checklist is a way of developing a system,” says Rizzo. She notes that airline pilots go through several checklists that they consult before taking off. And doctors consult checklists to cut down on errors.

As an investor, a checklist can provide you a way to screen every investment opportunity that comes your way. For example, let’s say that you are indeed a value investor. Here are three things that should be on your checklist:

Earnings History. Nothing succeeds like success. A company that has a history of earnings illustrates that it has a profitable business model that is yielding returns. Make sure to pick the right time frame when you evaluate a company’s earnings. If you look at the 10-year history of a company, you may not notice a declining trend. Or if you just look at quarterly reports, you might not see the bigger picture. As a value investor, consider examining the three- to five-year earnings history of a company.

Paying Dividends. Companies that are paying dividends usually have excess profits and can afford to make disbursements to shareholders. A dividend will give you a steady and immediate revenue stream, and you’ll enjoy additional gains if the stock’s price appreciates.

Total Debt-to-Current Asset Ratio. A big part of value investing is finding high quality companies with a healthy revenue stream and a low amount of debt. This ratio shows the amount of a company’s assets that are being funded with debt vs. equity. Companies with a ratio of more than 1 are heavily burdened with debt. As a value investor, consider investing in companies with a ratio of less than 1.

Lists Aren’t Just for Stocks

Madonna, Richard Branson and Leonardo da Vinci were all list makers. There’s a reason that such a wide array of successful people have made lists: It boosts productivity and increases one’s chance of success.

In her entertaining and helpful book, Rizzo explains how list-making can be applied to various parts of your life. Perhaps most compelling is how making lists can help you optimize a meeting. “When I’m in a meeting, I take purposeful notes. They are action oriented. By making a list, you are more empowered. You are prepared, and you stand out more.” She believes that you should make a list even before you begin a meeting: “What is your intention of being there?” “What are your talking points?” “What are the questions that you are going to ask?”

So before you join your next long and boring meeting, consider making a list. You can check it off during the meeting — and actually feel like you got something accomplished.

[This article was also published in TheStreet]

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned. Kabir Sehgal is the author of New York Times bestseller Coined: The Rich Life of Money And How Its History Has Shaped Us. He is also a Grammy winning producer. Follow him on Facebook and Twitter.