BLOCKAGE DISCOUNT
Back to GlossaryDefinition
A reduction in the fair market value of a large block of stock because the transfer of a large block of stock is less marketable than other transfers of smaller amounts of stock.
Summary
A blockage discount is a reduction applied to the fair market value of a large block of stock because selling a large quantity of shares at once can negatively impact the stock's market price and liquidity. Think of it like trying to sell 100 cars versus 1 car - selling 100 at once would likely require accepting lower prices to find enough buyers quickly. This discount recognizes that large blocks are harder to sell without affecting the market.
Usage Context
This term is crucial when studying business valuation, estate planning, tax assessments, and investment portfolio management, particularly in contexts involving large institutional holdings or estate valuations.
Common Confusions
- Confusing blockage discount with control premium (blockage is a penalty for size, control is a benefit)
- Thinking the discount applies to all large holdings regardless of market conditions
- Assuming the discount percentage is fixed rather than situation-dependent
- Mixing up blockage discount with marketability discount (though they can overlap)
