The Checklist Manifesto_ How to Get Things Right - Atul Gawande [68]
The checklist doesn’t tell him what to do, he explained. It is not a formula. But the checklist helps him be as smart as possible every step of the way, ensuring that he’s got the critical information he needs when he needs it, that he’s systematic about decision making, that he’s talked to everyone he should. With a good checklist in hand, he was convinced he and his partners could make decisions as well as human beings are able. And as a result, he was also convinced they could reliably beat the market.
I asked him whether he wasn’t fooling himself.
“Maybe,” he said. But he put it in surgical terms for me. “When surgeons make sure to wash their hands or to talk to everyone on the team”—he’d seen the surgery checklist—“they improve their outcomes with no increase in skill. That’s what we are doing when we use the checklist.”
Cook would not discuss precise results—his fund does not disclose its earnings publicly—but he said he had already seen the checklist deliver better outcomes for him. He had put the checklist process in place at the start of 2008 and, at a minimum, it appeared that he had been able to ride out the subsequent economic collapse without disaster. Others say his fund has done far better than that, outperforming its peers. How much of any success can be directly credited to the checklist is not clear—after all, he’s used it just two years so far. What Cook says is certain, however, was that in a period of enormous volatility the checklist gave his team at least one additional and unexpected edge over others: efficiency.
When he first introduced the checklist, he assumed it would slow his team down, increasing the time and work required for their investment decisions. He was prepared to pay that price. The benefits of making fewer mistakes seemed obvious. And in fact, using the checklist did increase the up-front work time. But to his surprise, he found they were able to evaluate many more investments in far less time overall.
Before the checklist, Cook said, it sometimes took weeks and multiple meetings to sort out how seriously they should consider a candidate investment—whether they should drop it or pursue a more in-depth investigation. The process was open-ended and haphazard, and when people put a month into researching an investment, they tended to get, well, invested. After the checklist, though, he and his team found that they could consistently sort out by the three-day check which prospects really deserved further consideration and which ones didn’t. “The process was more thorough but faster,” he said. “It was one hit, and we could move on.”
Pabrai and Spier, the Zurich investor, found the same phenomenon. Spier used to employ an investment analyst. But “I didn’t need him anymore,” he said. Pabrai had been working with a checklist for about a year. His fund was up more than 100 percent since then. This could not possibly be attributed to just the checklist. With the checklist in place, however, he observed that he could move through investment decisions far faster and more methodically. As the markets plunged through late 2008 and stockholders dumped shares in panic, there were numerous deals to be had. And in a single quarter he was able to investigate more than a hundred companies and add ten to his fund’s portfolios. Without the checklist, Pabrai said, he could not have gotten through a fraction of the analytic work or have had the confidence to rely on it. A year later, his investments were up more than 160 percent on average. He’d made no mistakes at all.
What makes these investors’ experiences striking to me is not merely their evidence that checklists might work as well in finance as they do in medicine. It’s that here, too, they have found takers slow to come. In the money business, everyone looks for an edge. If someone is doing well, people pounce like starved hyenas to find out how. Almost every idea for making even slightly more money—investing in Internet companies, buying tranches of sliced-up mortgages, whatever—gets sucked up by the giant maw almost instantly.