The anatomy of a position note

A recommendation that exists only in conversation cannot be reviewed, cannot be scored and cannot be argued with. Ours are written before capital moves, and they always contain the same six lines.

The six lines

• The thesis — what we believe, in two paragraphs, in plain language.
• The instrument — precisely what is being bought or sold, on which venue, in what size.
• The entry — the level or range at which the position is worth taking, and why it is not worth taking above it.
• The invalidation — the level at which the thesis is simply wrong, decided before there is any money at stake.
• The date — when this view expires and gets re-argued from scratch, whether or not it has worked.
• The risk — what this loses in the bad case, expressed as a share of the book, not as a percentage of the trade.

The invalidation level is decided before the position exists. That is the entire point of writing it down.

Why the invalidation comes first

Once capital is committed, every level becomes negotiable. The stop that was obvious on Monday becomes 'a bit tight' on Thursday. Writing the invalidation before the entry removes that conversation from a moment when you are least equipped to have it. If the level is hit, the position closes — not because a rule is sacred, but because the person who set it had better information about your judgement than the person looking at the screen does.

Why there is a date

Theses decay. A supply story that made sense in January may have been fully priced by April, even though the price chart still looks supportive. An expiry date forces the argument to be made again from a blank page, rather than allowing a position to survive on inertia and hope.

What happens when it is wrong

It goes in the quarterly letter with the same detail as the winners, including the original note, unedited. A track record that only contains successful positions is not a track record; it is marketing. The purpose of writing everything down is not to look right afterwards — it is to make it impossible to pretend you were.