The Investment Checklist

Shearn, who ran a private investment partnership, sets out a structured process for evaluating a business before buying its equity, organised as roughly seventy questions grouped by subject: understanding the business, evaluating the customer, the competitive position, management's quality and integrity, management's capital allocation record, the financial statements, and valuation.

The distinctive material is on customers and management. Shearn argues that most investors examine financial statements before they understand who the customer is, why they buy, how much they would pay to keep buying, and what would make them stop. He gives specific methods for finding this out, including talking to customers, examining churn and repeat purchase data, and identifying whether the customer is captive. On management he sets out how to read proxy statements, compensation structures and share ownership, how to assess whether stated goals were met, and how to evaluate acquisition history and buyback timing as evidence of capital allocation judgement.

The book's premise is that a written checklist enforces the discipline of asking questions an investor will otherwise skip when enthusiastic. Shearn draws on Atul Gawande's checklist work and on Buffett and Munger's stated criteria. The weakness is that seventy questions is more than any process can sustain, the book does not weight them, and there is no evidence that following it improves returns. It is also written for concentrated long-horizon equity investing and does not fit other approaches. Used selectively, as a source of questions to build a shorter personal checklist, it is genuinely useful.