The Value Of Order In Investing


In my experience, investors get in their own way of their investment goals and objectives. They are in a personal conflict with these goals and objectives, which trickles over into how they invest. In personal meetings and business settings, the conversation almost always turns to investing –  more, specifically what I’m investing in.

Then, after I share insight into my latest ventures, I sit back and listen to what my contemporaries are up to with their investments. I reserve my questions for after they’re done complaining about the “markets” or their losses for the year. These questions can reveal much of the dissonance in their goals versus their actions.

One of my follow-up questions might go like this:

“What are your rules for investing?”

Most, and I mean 90%+, are puzzled by “rules.” Often, the response is:

“What do you mean by rules?”

As I explained, rules and order are critical to sorting out the chaos of investing and are crucial in my success as an investor instead of investing based on hope, a hunch, or a swing for the fences for the next big win.

I’m intrigued by how these same people have rules and routines for many areas of their lives but not when it comes to investing. They have detailed workout and diet plans and meticulous schedules at work, but when it comes to investing, they fly by the seat of their pants. With investing, they think of rules as strict expectations or limitations.

A famous investor has two basic rules for investing:

  1. Never lose money; and
  2. Never forget rule number #1.

Investors that reject rules and order in investing exhibit common behavioral biases such as hubris and arrogance that lead to investing mistakes and losses and prevent success.

Hubris, arrogance, and the rejection of order and rules can be detrimental in any setting, not just investing. In his book, The Checklist Manifesto, author and surgeon, Atul Gawande, makes the point that no matter how expert you may be, well-designed checklists can improve outcomes and prevent disasters. Checklists have proven especially useful for surgeons and airplane pilots for mitigating and reducing mistakes.

In his book, Gawande discusses how routine tasks of surgeons have become so incredibly complicated that mistakes of one kind or another are virtually inevitable. It’s just too easy for an otherwise competent doctor to miss a step or forget to ask a critical question or, in the stress and pressure of the moment, fail to plan correctly for every eventuality.

Based on discussions with pilots and people who build skyscrapers – people whose adherence to basic routines can be a matter of life and death – Gawande concluded that experts need checklists – literally written guides that walk them through the key steps in any complex procedure.

In the last section of his book, Gawande shows how his research team has taken this idea, developed a safe surgery checklist, and applied it worldwide, with staggering success. The results from Atul Gawande’s research were so impressive that the World Health Organisation (WHO) decided to implement a surgical safety checklist to make surgery safer and to reduce infection and mortality.

Not all surgeons have embraced the checklist idea – many view these checklists as intrusive and an affront to their own skill, intellect, and knowledge. Many can’t be bothered to clutter their own minds with a checklist and hold contempt against being held accountable.

It’s these same highly skilled surgeons who make the simplest of mistakes that can be fatal. Nobody can fault a surgeon for the complexity of the surgery. Fault resides where mistakes could have been prevented had simple steps been taken.

Some of the world’s most successful investors have checklists. They bring rules and order to their investing. They have specific steps for prospecting, analyzing, and undertaking investment opportunities that align with their goals and objectives.

What if you had a checklist for investing?

Would you feel confined?

Would the checklist be an insult to your own perceived investing acumen, skills, and instincts?

As I interact and learn from those around me with similar investment objectives, many of these investors with greater net worth and substantially more income streams value order in their investment activities. They follow strict investment rules – checklists, so to speak – that can be as dead simple as only 2 to 3 rules. These few basic rules prevent common investing mistakes and maximize profits.

What are your investment rules?

I’m a proponent of rules because I need help understanding why so many investors are willing to engage in the disorder and chaos of the markets and sit by and allow their portfolios to dwindle when there is a better way and better investments – alternative investments.

My mind keeps bringing me back to the fact that most people act like speculators regarding their portfolios, not investors. Investors have rules and are not too arrogant to follow them and keep themselves and their portfolios accountable to these rules.

​​Speculators prefer to follow their gut and not restrict their investments to the simplicity of a checklist. This is to the detriment of their portfolios and their investment objectives.

Smart people invest in preserving capital and protecting it. Speculators put money behind the next new thing hoping for a big win.

​​Smart people use checklists because they prefer order and routine to accomplish their investment goals. Speculators leave the fate of their fortunes to chance.