Discipline & sizing
Principles on paper; discipline in position numbers. First layer of risk control: survive, then seek excess return.
1. Total equity vs cash
| Environment (subjective tag) | Max equity exposure | Notes |
|---|---|---|
| Risk-on, earnings revisions up | 70%–85% | Still keep L0; no leverage |
| Neutral | 50%–70% | Default |
| Credit tightening / extreme valuations / poor personal state | 30%–50% | More cash and short duration |
| Major uncertainty (war, systemic shock) | ≤30% | Core holdings + L0 only |
Tag each quarter in the Decision journal: environment tier + one-line rationale.
2. Single-name and sector caps
| Type | Cap (% of total equity) | Notes |
|---|---|---|
| Single stock | 15% | Lower if less understood |
| Single sector (incl. ETFs) | 25% | Cross-check Sector research |
| Single country non-index | 40% | Rest via broad indices |
| L3 opportunity bucket total | 10% | Matches L3 in framework |
If over limit: trim first, then add—never stack into a favorite.
3. Building and adjusting positions
Initial entry
| Conviction | Suggested tranches | Spacing |
|---|---|---|
| High (clear thesis, fair value) | 2–3 | 1–2 weeks or after key data |
| Medium | 3–4 | Around earnings / industry prints |
| Low (exploratory) | Starter ≤3%, then decide | At least one validation event |
Add only if all true
- Move is not the only reason (thesis strengthened or cheaper on forward metrics)
- Still under single-name cap
- Journal updated: which assumption was validated
- Sleep test passes after add
Trim / stop
| Situation | Action |
|---|---|
| Falsifier hit | Cut to zero or watch size; don’t “wait for bounce” |
| Valuation at upper band | Trim in tranches; optional tracking stub |
| Emotional gap down, no new facts | No forced stop; rerun checklist |
| Liquidity crisis / fundamentals broken | Reduce quickly; accept slippage |
Hard stop (optional): max loss on one position ≤ 25% of that position’s cost or 3% of total equity—pick one, write it in your constitution, don’t flip weekly.
4. Rebalancing
| Cadence | Task |
|---|---|
| Monthly | Limits breached? L0 intact? |
| Quarterly | Macro tier vs total equity; sector vs benchmark |
| Annually | Return attribution: selection, timing, or allocation |
Trigger example: any sleeve ±5% off target weight, or any single name over cap.
5. Never list
- No margin or opaque leveraged structures (personal boundary—adjust for your jurisdiction).
- No L3 decisions during major life stress (job change, family crisis).
- No averaging down because of “get even” psychology.
- No order without a written thesis.
6. Discipline self-check (monthly)
- Trade count unusually high? If >2× normal, write why
- Any limit breaches? Plan to fix when
- Cash + L0 still ≥ 6 months necessary spending
- Max drawdown acceptable? If not, drop equity tier one notch
- Re-read triggered items in Biases
tip
Discipline is not “never wrong”—it’s making errors visible, measurable, and improvable. Name every exception in the journal (e.g. “2025Q2 raised sector cap to 30% for policy bet”) and review next quarter whether to repeat it.