Kill Criteria

Below is some commentary from our co-founder Jake on how he's incorporated a "Kill Criteria" into his investment process:

Annie Duke has a new book out called “Quit.” One takeaway I really liked was a reframing of our “Create a Self-Contract” into something she calls “Kill Criteria.” (It also somewhat functions as a Pre-Mortem.)
The idea is simple enough: Kill Criteria are events or circumstances that would cause you to reverse a decision you’re about to commit to.

For instance…
For every Buy Decision you make, attach a set of Kill Criteria that would trigger a sell evaluation.
“I’m buying $XYZ, but if it gets to $100/share, I will sell.”
“I’m buying $XYZ, but if management reprices their options, I will sell.”

For ever Pass Decision, attach a set of Kill Criteria that might make you change your mind to buy.
“I’m passing on $XYZ due to valuation, but if it ever got down to a 10x P/E, I will take another look.”
“I’m not adding more to $XYZ right now, but if I saw revenue growth accelerate by 5%, I will increase my ownership to 5% of the portfolio.”

Kill Criteria are a great way to counteract the sunk-cost and escalation of commitment biases. They let you peek around the corner, and make decisions before you’re in the heat of the battle.

And the nice thing is, you don’t have to wait until your next decision to use it. You can go through your existing decisions and attach Kill Criteria retroactively. This really is a case of better late than never.

I added Kill Criteria as a custom trigger in the Self-Contract Action inside Journalytic.