What is a checklist and why do investors need it?
A checklist is a reflection of one’s thought process put in pointers
1. It reminds time and again of what is to be done
2. It prevents one from getting distracted.
3. It helps to get disciplined
4. It helps to be persistent in execution
Checklist helps in narrowing choices to funnel choices and make better decisions
Legendary investor Charlie Munger, the vice president of Berkshire Hathaway also known as the right-hand man of Warren Buffet believes in creating various checklists and mental models for evaluating investments choices.
We are living in information age. Everything is accessible at our finger tips. But not each and every piece of information is important enough to grab your attention.
A checklist can help in funnelling unimportant information and leave you with most crucial information required for making investment decision.
Checklists are important is concluded but how would you prepare one? What points would you consider to prepare your ICO investment checklist?
As an investor you’re probably loaded with all sorts of information from all sorts of sectors. Understanding every business idea that is thrown at you is practically impossible. So what do you do? You understand your circle of competence.
Businesses and sectors you understand where you can make informed decisions with little struggle. So automatically you eliminate most information and concentrate only on things you understand.
2. Be a Business Analyst and not a micro or macroeconomic analyst:
Companies showing market potential, market size, market share, economic scenarios are mostly beating round the bush. Most of micro and macro predictions are of little relevance.
3. Measure Risk:
ICO’s are not regulated. There is no statutory body governing ICO’s.
There are a few precautions an investor can take;
a. Gauging the promoters through social media accounts
b. Reading whitepaper thoroughly
c. Decoding the disclaimers with their practical implications
d. Assuming the returns in the worst possible scenario
e. Understanding the business idea.
f. Understanding the use of tokens and why they will contain and retain value
4. Having Intellectual Humility: Acknowledging what you don’t know is the dawning of wisdom. Resisting the craving for false precision and false certainty is critical.
5. Understanding the difference between token utility / token equity / token debt:
There are different tokens carrying distinct features. Know what is in the kitty for investors.
1. Debt tokens would give fixed returns on investment. Know why the value of tokens would rise once token hits exchanges
2. Equity tokens would offer company securities to token holders. Know the terms and conditions for the same.
3. Utility tokens would offer some use of the tokens. Ask yourself why would people use these tokens?
6. Being Decisive:
When proper circumstances present themselves, act with decisiveness and conviction. Opportunity doesn’t come often. So, seize it when it comes.
7. Creating a mental model:
Assume you’re the CEO of the company you wish to invest in. Now think of the probabilities and possible outcomes of the ICO project. Now compare the projection with that mentioned in the whitepaper. (don’t practise this if you do not have basic understanding of the nature of the business under lens)
8. Having Certainty:
Know when the tokens are going to be listed.
Know when the project is to be commenced.
Investing in a project where listing is uncertain can make things a lot different.
A 10% return in a 3 month time frame and same return in 1 year time frame are two totally different things.
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