Why a Checklist Won’t be Saving Your Life

“I’m Too Busy” and Other Things You Don’t Want to Hear Your Doctor Say

Peter J. Pronovost, M.D. is an intensive care specialist physician at Johns Hopkins Hospital. In 2001, the nurses under Pronovost noticed that at least one of the steps to reduce infection was omitted in more than one-third of the patients. So Dr. Pronovost developed a simple checklist, saw dramatic results, and got other hospitals on board. A later evaluation found that over an 18 month period, this checklist saved more than 1,500 lives and saved the state of Michigan over $100 million…all through a little checklist.

In spite of dramatic results achieved in the test hospitals, Dr. Pronovost soon learned that only a small fraction of hospitals were using these procedures consistently. The lapses fell into three categories: Egotism, Busyness, and Distraction. Some nurses and physicians were insulted that professionals with their wisdom and experience should have to stoop to the level of being governed by a checklist; they let their egos get in the way. Some also felt they were already too busy and had an aversion to more “tasks” in a world consumed with bureaucracy. Lastly, many were distracted by more “exciting” issues such as disease biology and finding therapies for treatment, while often ignoring more “mundane” research that measures whether therapies are effectively delivered to patients. 
Flight 38

Inspired in part by Dr. Pronovost’s checklist’s success, but more so by its concurrent failure to gain traction in the wider medical community, Dr. Atul Gawande, a general and endocrine surgeon at Brigham and Women’s Hospital in Boston, wrote The Checklist Manifesto: the Power of Getting Things Right. While recounting the story of Flight 38, Gawande points to one more reason we don’t follow checklists: Emotions. Following the near-fatal crash of British Airways Flight 38 from Beijing to London on January 17, 2008 (pictured), an inquiry led investigators to conclude that during the cross-polar flight, when atmospheric temperatures typically reach negative 105 degrees, moisture as sparse as two drops per gallon of jet fuel can crystallize. There was little risk to Flight 38 while on cruise control, but on approach, the pilot accelerated only to experience severe rollback: both engines lost power.

British Airways Flight 38

When a jet loses power, a pilot’s hard-wired, emotional response is to hit the gas. But hitting the gas in this instance caused fuel lines to inhale the equivalent of a 10 pound bag of ice cubes, leaving a 400,000 pound airplane 2 miles short of the runway, 600 feet above houses, lurching at 161 miles per hour. The crash, and all that ensued, evolved into a checklist which the FAA broadly issued to all pilots. Here’s the key, the checklist didn’t halt the formation of ice crystals; rather, it led to dampening the emotional pull which could lead to pilots choosing mistaken action over thoughtful restraint and patience. Since then, not one plane has been lost to ice induced engine failure.

Why We Need Financial Checklists

These same four roadblocks (Egotism, Busyness, Distraction, and Emotions) that have hindered the use of checklists in aviation and medicine probably account for 99% of the reasons why both professional and individual investors dismiss using meaningful checklists for gauging financial success. When an investment portfolio “loses power” (a situation which occurs much more often than severe rollback in aircraft), investors tend to increase the thrust: try something different, trade more often, buy what’s going up, sell what’s going down, or buy portfolio insurance. Living in a world short on patience and in search of sustainable success makes checklists a necessity, not a luxury.

“If You Think I Look Bad, You Should See the Average Guy”

Before we look at what checklists are, we need to understand what they aren’t…or rather, what they shouldn’t be. The most prevalent “checklist” that investors can relate to is a Benchmark; most notably the S&P 500. This “one-checkbox” checklist asks just one thing: “Did portfolio, investment, or strategy ‘A’ perform better than investment, portfolio or strategy ‘B’ over ‘X’ amount of time?” This would be like the physicians and nurses mentioned above, making their morning rounds with clipboards in hand. When they go to check on their recovering patients, they stand at the foot of the bed, read the following question aloud: “Does Patient A look better off than the average patient with this disease?” and then go ahead to check “yes” or “no” and leave it at that.

While we’d all certainly like to be healthier than average, there are two problems with this benchmark checklist. Problem #1 is that Patient A might very well be doing better than average, but if he has an inoperable tumor, then beating the benchmark really doesn’t provide much solace. Problem #2 is if Patient A is doing worse than average (but he’ll likely beat his head-cold and be home by suppertime), it won’t do him much good to change course and start him on chemotherapy just because his “chicken soup therapy” doesn’t seem to be kicking his cold fast enough.

Our View of Checklists

Checklists should prioritize meaningful life benchmarks, then detail the actions required to reach those milestones, and include a map of who’s responsible for what and by when (all vetted through the reality of what things in life one can control and what things one can’t). Because “looking better” than the average patient won’t mean you get home in time for supper, just like beating the S&P won’t mean you’ll reach your financial goals. Below, we’ll look at just two of the meaningful checkpoints on our Checklist, but first I need to thank Sam Hummel, a good friend and retired colleague. Drawing from a 34-year career with Merrill Lynch, Pierce, Fenner & Smith, Sam came up with and shared with us his ‘Benchmarks of the Sustainably Independent’ and we’re ever thankful for his generosity and wisdom.

Have No Consumer Debt

One truly needs very few discretionary purchases to live, but effective marketing and easy payment terms lead us to believe we need lots of “one time purchases” to survive. Stretching repayment over longer terms lowers the monthly outlay, leading us to think we are wise to finance this better lifestyle with our future earnings. But when we buy on credit, we’re assigning our future earnings over to our creditors, with interest, until we’re able to “buy back” our previously hocked earnings. Pledging future earnings to buy depreciating goods sparks a chain reaction that can easily end a dream of having a financially secure future. The borrower then works because he’s obligated to his creditors, not because he’s passionate about his vocation.

Create a Sustainable, Growing Lifelong Income Stream

Ask any pre-retirement aged person when they’d like to live off their accumulated assets and most will say “never,” because the “number” they thought they needed to retire keeps growing and their portfolio keeps fluctuating. We know, however, that no one lives off of their assets…they live off the income. Taking steps to raise the probabilities that you’ll have sufficient income is a milestone worth aiming for, achieving and celebrating. The key is focusing on an income stream that is reliable, significant, and growing rather than focusing on taking on undue risk trying to grow assets and then, on retirement day, slamming on the brakes and searching for the highest yield possible. We’ve touched on this in commentaries before. For an overview, I suggest taking a look at our 2nd Quarter 2010 Commentary, Looking at Investing Through the Eyes of a Landlord.

The Rest of the Checklist

Our other checkpoints touch on areas such as accumulating capital, educating children, diversifying assets, establishing a charitable family foundation, and a handful more. And just like Dr. Pronovost, our Checklist isn’t extensive or earth-shattering, but it is often these easily attainable checkboxes that stand in the way of an individual’s ability to achieve true financial independence. For example, this morning we had the opportunity to run through both our JSCO Checklist and the benchmark return “checklist” with a client couple (one of whom is actually a pilot nonetheless!) And while they were pleased with both, it was clear to them which checklist they’d rather have their doctor run through. It was the difference between asking: “Does this patient look better than average?” or “Does this patient have these 10 things that will likely allow him to be well enough to be home in time for supper?”

Jonathan W. Smith
Managing Partner

About Jonathan Smith

likes: everything my wife cooks, refrigerator art, my wife, dogs, kids and friends, lighted christmas balls, vintage boats, children's lit, jesus dislikes: beets, short days, taking lighted christmas balls down
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