Process, Checklists and Bargain Hunting

Theme and Background

This chapter uses the commonalities between flying and investing as a starting point to explore how procedural processes and checklists can assist investment judgment in high-risk, information-dense environments. The author emphasizes that while investing relies on subjective judgment, structured research processes can enhance decision-making quality.

Core Views

• Investment judgment can be enhanced by procedural processes: Although no two investments are identical, checklists and processes (such as deep research, management meetings, and valuation estimates) can improve the reliability of judgment.
• Judgment against market consensus: Even if the current stock price is unattractive, a unified checklist should be followed to conduct complete research on companies of interest and add them to a "shopping list," waiting for market discounts to appear before acting decisively. This challenges the common practice of "only researching stocks that can be bought immediately."

Key Arguments and Data

• Specific steps of the process: Deep research on the company → Identify key drivers for the next five years → Meet with management → Share findings with the team → Estimate intrinsic value. This checklist must be executed regardless of whether the current stock price is attractive.
• "Shopping list" strategy: When the calculated upside is insufficient for immediate investment, the company enters the "shopping list" with a clear target buy price. When market volatility creates discounts, process-driven records support swift action.
• Historical data support: In 2019, the average new position in Oakmark International and Oakmark International Small Cap had undergone four management meeting analyses over the prior five years. This indicates that long-term tracking and repeated evaluations are the foundation of investment decisions.

Companies/Assets Involved

• Oakmark International Fund: Adopts a concentrated holding strategy (investing in a relatively small number of stocks), so the rise or fall of a single security has a greater impact on the fund's net asset value. This increases volatility but may generate higher returns over the long term.
• Oakmark International Small Cap: Also follows the above research process, with new positions in 2019 averaging four management meeting records.

Investment Implications

• Investors should establish and adhere to their own research checklist: Even if the current market does not offer buying opportunities, they should continuously track and value companies of interest, forming a "shopping list." This ensures that during market panic or short-term declines, undervalued assets can be quickly identified and purchased.
• Patience is central to value investing: Finding "good businesses" and "management aligned with shareholder interests" is relatively easy, but waiting for the market to offer discounts requires patience. Process-driven records and a checklist mindset are key to maintaining discipline and avoiding impulsive trades.
• Concentrated holdings must match high certainty: Oakmark's concentrated strategy means each investment must be validated through a rigorous process. Investors should avoid concentrated bets without deep research.