The Pre-Flight Checklist
Munger's four checks and Bill Ackman's eight, on one page. Run them before every buy.
In 1935, Boeing’s best bomber crashed on its first demo. The pilot, one of the most experienced in the country, forgot one simple step. Boeing’s fix wasn’t a better pilot. It was a checklist.
Investors fail the same way. We rarely lose money on what we didn’t know. We lose it on what we knew and didn’t check.
“I’m a great believer in solving hard problems by using a checklist.” — Charlie Munger
Munger’s four checks
- Do I understand the business?
- Does it have a durable competitive advantage?
- Is management able and honest?
- Is the price sensible?
Four questions. If any answer is no, stop.
Bill Ackman’s eight
Pershing Square looks for businesses that are:
- Simple, predictable and free-cash-flow generative.
- Protected by formidable barriers to entry.
- Little exposed to things it cannot control: the economy, commodities, rates, regulators.
- Financially strong, with modest debt.
- Not dependent on raising money to grow.
- Large.
- Available at an attractive price.
- Run by exceptional management, with good governance.
How to use them
- Before you buy, not after. A checklist filled in later is just an excuse.
- Write it down. One page, dated.
- A gate, not a score. One “no” is enough to walk away.
Checklists don’t make you smarter. They stop you from skipping what you already know.
Disclaimer. Educational content only. Not investment, legal, tax or financial advice, and not a recommendation to buy or sell any security. References to specific investors are illustrative and imply no endorsement or expectation of comparable results. All investments involve risk, including possible loss of principal.
Sources. National Air and Space Museum · Pershing Square · Fortune