What would prove you wrong

In simple terms

Once you own a share, it becomes harder to judge it fairly. Bad news gets explained away; the purchase price becomes an anchor; admitting a mistake hurts, as the behavioural biases lesson explains.

The remedy is to decide before investing what would prove you wrong. Written while you are calm and objective, these criteria guide decisions when you are neither.

Kill criteria

A kill criterion is a specific piece of evidence that would break the thesis. Good ones:

• Tie to a key assumption in the written thesis, as the research report lesson describes.
• Are specific and checkable, with numbers and time limits.
• Are about the business, not the share price.

When a kill criterion is met, the thesis is broken. That does not automatically mean selling, but it means the original reason for owning the share no longer holds, and a fresh decision is needed.

Milestones

Milestones are positive checkpoints the thesis must reach: "The new plant starts commercial production within 12 months", "Market share is above 30% in two years". Missing a milestone is an early warning, even before a kill criterion is met.

Noise and signal

Most news does not affect a thesis:

• Daily price moves.
• Broker upgrades and downgrades.
• A weak quarter explained by a clear, temporary factor.
• Market-wide falls.

Ask one question of any news: does this change one of my key assumptions? If not, it is probably noise, as the reading market news lesson explains. If it does, check it against your kill criteria.

The pre-mortem

A pre-mortem is a simple exercise done before investing. Imagine it is three years later and the investment has lost half its value. Write down the most likely reasons.

Typical answers include competition, a failed expansion, a governance problem, paying too much, or a downturn. Each one either becomes a new kill criterion, a reason to reduce position size, or a reason not to invest. Pre-mortems work because imagining failure as already having happened makes people more willing to name risks.

Changing your mind is a strength

Changing your view when evidence changes is how good research works. The real weakness is holding on because admitting an error hurts, or because the price is below what you paid, as the decisions and outcomes lesson explains.

Why it matters

Kill criteria and pre-mortems protect you from your future self. They turn a vague "I'll keep an eye on it" into specific checks, and they make it easier to act when the thesis breaks, before small mistakes become large ones.

Limitations

Not every risk can be foreseen, and criteria can be set too tightly or too loosely. Some important evidence is qualitative and hard to put into numbers. Criteria guide judgement; they cannot replace it.

Common mistakes

• Using price falls as kill criteria.
• Writing vague criteria such as "if things get worse".
• Moving the goalposts after a criterion is met.
• Skipping the pre-mortem because you are confident.

Try it yourself

1. For a thesis you have written, list each key assumption.
2. Write one specific kill criterion and one milestone for each.
3. Run a pre-mortem: list five reasons the investment might lose half its value in three years.
4. Add any new criteria the pre-mortem suggests.