Disconfirmation Check
Challenge an investment thesis by searching for how it could fail.
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 91%
The Disconfirmation Check counters confirmation bias by making opposition research a required part of an investment decision. The investor first states the thesis and identifies the assumptions that must remain true. Instead of searching only for reasons the position should succeed, the investor asks what could go wrong and constructs a plausible account of how failure would unfold. Research then targets evidence that could invalidate the thesis, including credible arguments from sources the investor would normally dismiss. The decision is updated according to the strength of that evidence rather than the investor’s attachment to the holding. This mechanism turns disagreement from a threat into an analytical input and makes hidden risks easier to see before they become losses.
Origin
Extracted from Masters in Business
Core principles
- 01Everyone is vulnerable to confirmation bias.
- 02Owning an investment creates pressure to defend it.
- 03Contradictory evidence is more diagnostic than supportive commentary.
- 04A credible failure story exposes hidden assumptions.
- 05Judge the thesis separately from the person presenting evidence.
How to run it
- 1
State the thesis
Write a concise explanation of why the investment should succeed and what outcome you expect.
Pro tip Make the thesis specific enough that future evidence can prove it wrong.
Watch out A vague thesis can survive any result and therefore cannot guide a decision.
- 2
Expose the assumptions
List the business, valuation, competitive, and market conditions required for the thesis to work.
Pro tip Mark which assumptions are facts and which are forecasts.
Watch out Do not quietly treat optimistic forecasts as established facts.
- 3
Construct the failure case
Ask what could go wrong and describe the most plausible path from current conditions to failure.
Pro tip Imagine reviewing the failed investment afterward and explaining the cause.
Watch out Avoid absurd failure scenarios that make the original thesis look stronger by comparison.
- 4
Seek contradiction
Search for credible information and arguments that challenge the thesis, including sources outside your normal information diet.
Pro tip Evaluate the evidence before judging the source’s identity or worldview.
Watch out Merely collecting opposing links is not useful unless you engage with their claims.
- 5
Revise the decision
Compare the disconfirming evidence with the original assumptions and strengthen, resize, reject, or exit the position accordingly.
Pro tip Record what evidence would trigger another review.
Watch out Do not move the decision criteria simply to preserve a favored holding.
In the wild
An investor owns a technology company whose shares have weakened. Instead of reading only optimistic forecasts, the investor lists the assumptions behind future growth, studies evidence that the company’s best days may be behind it, and identifies the indicators that would invalidate the original thesis.
→ The investor makes a deliberate hold, reduce, or sell decision based on evidence rather than reassurance.
Common mistakes
Searching only for reassurance
Looking exclusively for bullish commentary after buying a stock reinforces ownership bias instead of testing the thesis.
Dismissing the messenger
Rejecting contradictory evidence because of who presents it prevents useful information from reaching the decision process.
Writing an unfalsifiable thesis
If no possible evidence can invalidate the thesis, the exercise becomes rationalization rather than analysis.
Is it for you?
Best for
It is best for investors evaluating concentrated positions, new purchases, or emotionally charged market views.
Not ideal for
It is not a substitute for diversification, valuation work, or professional advice when the investor lacks the necessary expertise.
From the transcript
“we all are looking for stuff that just already validates what we're thinking.”
“he doesn't just say why should I buy this stock?”
“he asks what can go wrong?”
From the episode
At the Money: Keeping It Simple