Professional Documents
Culture Documents
The Checklist
kli t
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Munger & The Checklist
B-17 Bomber
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“Too Much Plane for One Man to Fly”
¾ After
Afte the B-17
B 17 c
crash,
ash Boeing’s s
survival
i al was
as in
question.
¾ The aviation checklist was born.
born
¾ Too complex for one man’s memory
¾Four checklists
h kli – takeoff,
k ff fli
flight,
h llanding,
di after
f
landing.
¾ Zero accidents – govt.
govt ordered 12,731
12 731 B-17
B 17 bombers
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The ICU Checklist
¾5 Million Lines put
p t into
patients annually in ICUs
¾ 4% infected after 10
days; 80,000 people.
¾ Fatal 5
5-28%
28% of time.
Increased ICU time.
¾ The Line Insertion
checklist.
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The ICU Line Insertion Checklist
1.
1 Wash hands withith soap.
soap
2. Clean patient’s skin with chlorohexide antiseptic.
3. Put sterile drapes over entire patient.
4. Wear a sterile mask, hat, gown and gloves.
5. Put sterile dressing over catheter site after line in.
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Why are checklists so effective?
¾ O
Our bbrains
i are designed
d i d tto take
t k short-cuts
h t t and
d
arrive at answers quickly.
¾ When you see the lion, you run. You don’t
process your options, you just run.
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The FAA’s Approach to Aviation Safety
¾ Very
Ve effective;
effecti e Lower
Lo e probability
p obabilit of dying
d ing in an
airplane than crossing the street.
¾ A human life is worth $3 Million.
Million
¾ Aviation safety comes from carefully studying each
and every plane crash worldwide.
¾ Changes to Checklists, pilot training, equipment,
procedures,, ATC etc.
p
¾ Results are extremely compelling.
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Investing and The Checklist
¾ Not rocket
ocket science.
science Pretty
P ett obvious.
ob io s
¾ Start with stuff we’ve learned from Graham, Buffett,
Munger Klarman
Munger, Klarman, Fisher,
Fisher Templeton etc.
etc
¾ Margin of Safety, Moats, Simple Businesses …
¾ Make
k a reall checklist.
h kli
¾ Examine all your mistakes that led to a
permanent loss of capital – the plane crashed.
crashed
¾ Add to the checklist.
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Visceral vs. Direct Experience
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Add to the Checklist
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Add to the Checklist
¾ Checklist query:
q y
¾ Are the revenues and cash flows of the business
sustainable or overstated/understated due to boom
or bust conditions? (e.g. Cort)
¾ Are there temporary tailwinds enhancing FCF?
¾ Need to appreciate that this is easy to miss with
many businesses that have temporary tailwinds that
can be hard to detect as being temporary
temporary.
¾ Minds as sharp as Munger and Buffett missed it.
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Buffett’s Rare Mistakes
¾ Berkshire Hathaway y turned out to be a great
g
investment. Buffett calls it a mistake. What was the
mistake?
¾ Was a Graham net net. Bought below net working
capital.
¾Ih
have made
d this
hi specific
ifi mistake
i k numerous times.
i
¾It’s now on the checklist. No more!
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Learning from Buffett
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The Evaporating Moat
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Add to the Checklist
¾ Checklist additions:
¾ Is there a solid moat? (e.g. Berkshire Mills)
¾ Could the moat be shrinking/evaporating?
(e.g. US Air, Dexter Shoes)
“The business world is divided into a tiny number of
wonderful businesses--well worth investing in--
and a huge number of bad or mediocre businesses
that are not attractive as long-term
long term holdings.””
- Warren Buffett (in Money Masters of our Time)
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Using the Checklist
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Using the Checklist
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What is one to do with Wells Fargo?
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Checklist shows possible failure points
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Lessons Learned from 2008-09
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Thank You.
Mohnish Pabrai
Managing Partner
P b i Investment
Pabrai I t t Funds
F d
Irvine, California, USA
mp@pabraifunds.com
Tel. +1949.453.0609
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