Building a Watchlist You Will Actually Use

The typical watchlist accumulates names and never sheds them. After two years it contains sixty companies, most of which the owner could no longer explain why they added. It is a list of things once found interesting, which is not the same as a tool.

The problem with a flat list

A flat list carries no information about why a name is on it or what would move it to action. Without that, reviewing the list means re-deriving the original reasoning from scratch each time, which is precisely the work nobody does.

Three tiers

Tier one is the action queue: names you would buy today at a specific price, with that price written down. This tier should be short — five to eight names — and reviewed weekly.

Tier two is the research queue: businesses you find interesting but have not yet done the work on. Each entry carries one sentence on what you would need to establish. Reviewed monthly, with a rule that anything sitting here for more than two quarters gets promoted or deleted.

Tier three is the monitoring list: businesses you understand and would own at the right price, which is currently far away. Reviewed quarterly, and only to check whether the price has moved into range.

The rule that makes it work

• Every entry carries a reason and a trigger, written at the time of adding.
• Nothing enters tier one without a specific price and a specific thesis.
• Anything stagnant in tier two for two quarters is deleted, not carried forward.
• The list has a maximum size. Adding requires removing.

The forced-removal rule is the one people resist and the one that does the work.