Atul Gawande’s “The Checklist Manifesto” Review, Summary, Quotes

In 2009 Atul Gawande, a professor of surgery, published a book called The Checklist Manifesto – How To Get Things Right. The book is a good read and is relevant for most professions, not to mention what we do in our private lives. Why? Because in a complicated world, it’s easy to make mistakes by skipping important procedures or tasks.

Most people have probably seen from movies or air crash investigations how pilots run checklists before takeoffs. The majority of all airplane accidents are still caused by human mistakes. Most mistakes happen because one task or procedure was forgotten. Checklists were “invented” by pilots to reduce the number of accidents, and have been an immense help in that respect. The purpose of a checklist is beautifully summed up by Gawande:

Whether running to the store to buy ingredients for a cake, preparing an airplane for takeoff, or evaluating a sick person in the hospital, if you miss just one key thing, you might as well not have made the effort at all. (page 36)

Why use checklists?

In his profession, Gawande discovered that checklists could also reduce life-saving mistakes during surgery. As he wrote in his book, there is no point in having knowledge if we fail to adapt it in a timely and orderly manner. Failure, he argues, stems not from arrogance, but from not applying what we know works.

We believe this to be equally true for trading. How many mistakes boil down to misuse, system 1 decisions (to refer to Daniel Kahneman), or simply forgetting to do certain steps?

For example, this article is written by using a step-by-step checklist of things “to do” before we press the publish button. If we don’t use the checklist, important steps are guaranteed to be forgotten.

Warren Buffett and Charlie Munger use checklists

The book is a typical Charlie Munger book and he has praised Atul Gawande’s book. Both Munger and Buffett use checklists. Most likely, Buffett has only a mental checklist, while we believe Munger has a written one.

Both Munger and Buffett liked The Checklist Manifesto, and Gawande was subsequently hired as CEO for the healthcare project between Amazon, Berkshire, and JP Morgan.

Another famous investor, Mohnish Pabrai, has a checklist he runs through before every investment he makes. Pabrai says this has avoided many poor investments.

What are the main takeaways from The Checklist Manifesto?

Let’s summarize what we consider to be the main takeaways from the Checklist Manifesto:

Lesson number one: Avoiding mistakes

..whether running to the store to buy ingredients for a cake, preparing an airplane for takeoff, or evaluating a sick  person in the hospital, if you miss just one key thing, you might as well not have made the effort at all.

As mentioned, the aviation industry uses checklists extensively. Before every take-off or landing, a checklist is meticulously worked through – “flaps dow?”-  “checked”.

The reason is simple. Checklists are extremely effective in preventing mistakes when facing complex and/or repetitive tasks. Humans are lazy and prone to shortcuts, consciously or not. Subsequently, mistakes are made – often with catastrophic mistakes. The more tasks and the more complex, the more valuable checklists are.

On the savanna, we use System 1 decisions (run for cover instinctively). But investing and trading should be about System 2 decisions, and checklists are a tremendous tool in achieving that. Any stock analysis should be based on a checklist.

In tennis, this is called unforced errors. Victor Niederhoffer wrote the following in The Education of A Speculator:

There are so many ways to lose, but so few ways to win. Perhaps the best way to achieve victory is to master all the rules for disaster and then concentrate on avoiding them.

One of the most important parts of our own trading checklist is our incubation period. When we have backtested a potentially good strategy, we test it live (without real money) for at least six months. This is our main out-of-sample test. If it works well for six months, we might start trading with small amounts of real money. If not, it ends up in the bin (or being retested later). Very few strategies make it past this test and thus saving us a lot of money in the long run.

In medicine, one must avoid both false positives and false negatives. But in investing, you need to avoid false positives, and a checklist comes in handy.

Lesson number 2: Increase your skills

If you have a useful checklist, you actually improve your outcome without any increase in skills. You simply remove the number of unforced errors. Additionally, it makes you systematic and hopefully more rational in your trading.

Lesson number 3: You save time

The benefits of reducing mistakes and unforced errors are obvious.

Perhaps not so obvious, is the fact that you most likely save time. In most cases, you can quickly reject an idea and stop wasting time. Charlie Munger labels quickly his ideas as “in”, “out” or “too difficult”.

This might give you an efficiency edge, as you can dismiss a trade or investment pretty fast. It gives you an edge because most investors dislike checklists because they are (usually) tedious, boring, and for many even an embarrassment.

Summary of The Checklist Manifesto

Atul Gawande’s The Checklist Manifesto is short and an easy read. For its cheap price, we believe this is a book that should be on the bookshelf of any aspiring trader or investor!

Quotes from Atul Gawande’s Checklist Manifesto

Below you will find our favorite quotes from The Checklist Manifesto:

Whether running to the store to buy ingredients for a cake, preparing an airplane for takeoff, or evaluating a sick person in the hospital, if you miss just one key thing, you might as well not have made the effort at all.


Even the most expert among us can gain from searching out the patterns of mistakes and failures and putting a few checks in place. But will we do it?


…..checklists seem able to defend anyone, even the experienced, against failure in many more tasks than we realized. They provide a kind of cognitive net. They catch mental flaws inherent in all of us – flaws of memory and attention and thoroughness. And because they do, they raise wide, unexpected possibilities.


On centralization:

It was a lack of understanding that, in the face of an extraordinarily complex problem, the power needed to be pushed out of the center as far as possible…..No, the real lesson is that under conditions of true complexity – where the knowledge required exceeds that of any individual and unpredictability reigns – efforts to dictate every step from the center will fail.


…they improve their outcomes with no increase in skill. That’s what we are doing when we use checklists.


…however, was that in a period of enormous volatility the checklist gave his team at least one additional and unexpected edge over others: efficiency…..using the checklist did increase the up-front work time. But to his surprise, he found they were able to evaluate many more investments in far less time overall  (interview with Mohnish Pabrai).


We don’t like checklists. They can be painstaking. They’re not much fun. But I don’t think the issue here is laziness. There’s something deeper, more visceral going on when people walk away not only from saving lives but from making money. It somehow feels beneath us to use a checklist, an embarrassment. It runs counter to deeply held beliefs about how the truly great among us – those who aspire to be – handle situations of high stakes and complexity. The truly great are daring. They improvise. They don’t have protocols and checklists.


Discipline is hard – harder than trustworthiness and skill and perhaps even than selflessness. We are by nature flawed and inconstant creatures. We can’t even keep from snacking between meals. We are not built for discipline. We are built for novelty and excitement, not for careful attention to detail. Discipline is something we have to work at.


The same can be said in numerous other fields. We don’t study routine failures in teaching, in law, in government programs, in the financial industry, or elsewhere. We don’t look for the patterns of our recurrent mistakes or devise and refine potential solutions for them.  


Why are checklists important in professions and private lives?

Checklists are crucial in complex and repetitive tasks to avoid mistakes. The book emphasizes their role in preventing errors, drawing parallels from professions like aviation, surgery, and even trading. Pilots use checklists extensively before takeoffs to ensure that crucial tasks are not overlooked, reducing the risk of human errors that can lead to accidents.

How do Warren Buffett and Charlie Munger use checklists in investing?

Checklists are effective in preventing mistakes during complex and repetitive tasks in trading. They help traders avoid unforced errors and ensure a systematic and rational approach to decision-making. Both Warren Buffett and Charlie Munger utilize checklists in their investment processes. While Buffett may use a mental checklist, Munger is believed to have a written one. They find checklists valuable in avoiding mistakes.

What is the significance of an incubation period in trading checklists?

An incubation period, as mentioned in the content, is a crucial part of the trading checklist. It involves backtesting a strategy, testing it live without real money for at least six months, and only proceeding with real money if it performs well during this period. Checklists, when applied in investing, help avoid false positives by ensuring that all necessary steps and considerations are taken into account before making investment decisions.

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