THE MOMENT BEFORE YOU HIT BUY
A good story isn’t an investment thesis.
Put your conviction through a little friction.
One position. Three outcomes. Your assumptions.
Enter a portfolio value between 1 and 1 trillion.
Hypothetical, unleveraged investment. All other holdings stay flat. No taxes, fees, or currency changes.
A 40% loss needs a 66.7% gain to break even.
On the position itself. Losses and gains aren’t symmetrical.Position = portfolio × allocation. Bear loss = position × downside. Bull gain = position × upside. Portfolio impact = position return × allocation. Recovery gain = loss ÷ (1 − loss). A 100% loss cannot be recovered on the same position. These are chosen scenarios, not probabilities or a maximum possible loss.
If this costs you $4,000, does your thesis still hold?
Writing down what would change your mind makes it harder to move the goalposts later.
Your notes stay in this page and clear when you reload. Copy your memo to keep it.
Five reminders for the moment a story starts sounding irresistible.
Your return depends on the price you pay and what happens next. “I love the product” doesn’t explain the valuation.
What expectations are already in the price? What has to go right for your return to happen?
Holdings can share the same sector, customers, or economic drivers. Different names don’t guarantee different risks.
Which event could hurt several holdings at once? Look inside funds for overlapping positions.
Read FINRA on concentration risk100 becomes 50 after a 50% loss. Getting back to 100 takes a 100% gain. The arithmetic doesn’t care about your conviction.
Choosing −40% in a calculator doesn’t cap your loss at 40%. A useful model helps you ask better questions; it can’t make uncertainty disappear.
What did you leave out? Consider total loss, liquidity, taxes, fees, and whether the rest of your portfolio might fall too.
Diversification can reduce the impact of an individual investment going wrong. It cannot guarantee protection when the wider market falls.
Read Investor.gov on diversificationThis is a place to ask what you believe, what could go wrong, and what it would cost. Bring your own thesis. Leave with better questions.
STAY CURIOUS.