Write the mandate before selecting positions
The mandate defines the horizon, liquidity, allowed instruments, exposure limits, and review rules that every position must fit.
Objective and time horizon:
Liquidity needs and cash reserve:
Allowed instruments and leverage boundary:
Maximum single-name / theme / asset exposure:
Maximum planned drawdown response:
Rebalancing and thesis-review schedule:
Evidence required to add, hold, reduce, or exit:Size from downside and uncertainty
Conviction should come from evidence, but size must still respect the loss if the thesis is wrong and the market gaps past the expected exit.
- 01Scenario loss
Estimate loss under base invalidation, gap, liquidity, and severe downside scenarios.
- 02Thesis quality
Score evidence quality, valuation support, catalyst clarity, and falsifiability.
- 03Book overlap
Measure exposure to the same sector, factor, macro driver, and underlying asset.
- 04Monitoring load
Count filings, events, and risk surfaces you can realistically follow.
- 05Final exposure
Choose the smaller size produced by downside, concentration, liquidity, and mandate limits.
Find hidden concentration
Different tickers do not guarantee diversification. Positions can share the same index beta, rate sensitivity, commodity input, crypto exposure, or liquidity shock.
| Overlap | Question | Possible response |
|---|---|---|
| Sector | How many positions depend on the same industry cycle? | Cap theme exposure or require stronger asymmetry |
| Factor | Are growth, momentum, value, volatility, or rates driving several names? | Stress a factor reversal across the whole book |
| Underlying | Do ETFs, options, miners, and equities point to the same asset? | Aggregate the economic exposure instead of counting tickers |
| Catalyst | Can one event affect several positions at once? | Reduce event concentration or preserve more liquidity |
| Liquidity | Could several positions become hard to exit together? | Size for stressed volume and wider spreads |
Build the monitoring cadence
Review price when it changes the risk, and review the thesis when new business evidence arrives. Those are different clocks.
| Cadence | Review |
|---|---|
| Daily | Material news, unusual price/volume, stops, liquidity, portfolio heat |
| Weekly | Technical structure, relative strength, catalyst calendar, thesis changes |
| Quarterly | Revenue, margins, cash flow, balance sheet, guidance, dilution, competition |
| Event-driven | Filings, management changes, regulation, litigation, financing, product or customer evidence |
| Annual | Mandate, concentration limits, opportunity cost, tax and liquidity assumptions |
Define add, hold, reduce, and exit rules
Price movement alone is not a thesis update. Connect each action to evidence and the mandate.
Evidence improved
The thesis strengthened, valuation still supports the position, and total exposure remains inside the mandate.
The thesis remains intact
Expected evidence is arriving and the position still offers acceptable asymmetry versus alternatives.
Asymmetry or fit weakened
Valuation expanded, correlation rose, liquidity changed, or the upside narrowed before full invalidation.
Invalidation occurred
The business, valuation, catalyst, risk, or mandate condition that supported the position failed.
The work does not clear the bar
Uncertainty, price, downside, or monitoring load makes patience the better portfolio decision.