Walk-away price

The price above which, or the specific finding after which, you have decided in advance not to proceed - written down and dated before the process begins.

Example

"I do not proceed if revenue is materially concentrated, or if the licence does not transfer cleanly," written in week one.

Important

Keep the dated original rather than a working copy. Its whole value is that it was written by somebody who had spent nothing, was not tired, and had no audience.

Related terms

• Sunk cost fallacy — Continuing to commit money, time or attention to a position because of what you have already put in, rather than because of what it is now worth.
• Margin of safety — The gap between what you pay and the value you believe an asset has - deliberate room for the estimate to be wrong.
• Investment thesis — A written statement of what you believe about an investment, at what price it is worth owning, and what specific observation would tell you that you were wrong.

Lessons that explain it

• When to walk away, after you have already spent — By the time walking away is the right answer, you have usually spent money, months and a quantity of public commitment - and all three argue in the same wrong direction. (12 min)
• Several methods give a range; the gaps show what you believe — No single method values an early company reliably. Running several and comparing the results shows the range of defensible prices and exposes which assumptions drive the difference. (10 min)
• The entry itself: eight lines, five minutes — A template short enough that you will actually use it, and specific enough to be worth reading in three years. Write one by the end of this lesson. (8 min)

All 578 terms in the Investing glossary