Nomura’s quant strategist guys Anthony Morris and Tam Rajendran have an interesting note out titled: What Investors Can Learn From Pilots And Surgeons.The idea is that some people think of pilots and surgeons using the ‘hero model’, whereby one lone guy acts completely on gut, responding to every twist and turn right as it comes, “unshackled to procedure.” In reality, this results in a lot of risk and needless deaths.
Instead, good pilots and surgeons operate from a checklist that they stick to, not letting a single impulse override everything else.
This idea of using “checklist” in your investing ideas would have been super-helpful in the spring and summer of 2008, when soaring oil prices got everyone talking about inflation or stagflation. But the blunder was getting transfixed on oil prices.
Morris and Rajendran note, in a bit of self-shoulder slapping, that their own model encouraged them to go long long-bonds (normally a crazy idea if you’re worried about inflation) because other parts of their checklist (risk appetite and growth) were flashing big warning signs that augured well for bonds.
The bottom line: Having a set of investment criteria that you abide by regardless of circumstance will prevent a lot of needless death.