Lesson 5 of 6
The reasons and the rails
The document itself. Reasons in your own words, each with the condition that would refute it, each level derived, and the ones that produce no condition.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- One line per reason, with the condition on the same line, so a reader in two years sees why the level is what it is.
- Some reasons produce no condition, and those are written down as having none rather than left out.
- Three or four reasons is the right number. Ten means none of them is load bearing.
Everything so far produces this page. It is short, it takes longer to write than it looks, and it is the only output of the whole exercise that survives into next year.
The shape of one line
- 1The reasonOne sentence, in your own words, that a stranger could check
- 2The figureThe filed figure that moves when the reason stops being true
- 3The level and directionDerived from the reason, not read off the history
- 4The noteWhat a breach would establish, and whether it is automated
One line per reason
Each line carries four things: the reason in a sentence, the figure that moves when it stops being true, the level and direction, and one note saying what a breach would establish and whether anything checks it automatically.
The four together fit on a line and a half. A reason with no figure beside it is an opinion that cannot be wrong, and one that cannot be wrong never gets revised.
The level is derived, always
This is the single instruction most worth repeating from the thesis course. A level picked a little below where a figure has been will rarely be breached, so it confirms the reason rather than testing it.
Derive it instead: state what has to be true, work out the point at which it has demonstrably started to fail while something is still left of it, and compute that point. The two capstones before this one derive four levels and one range between them, and each shows its arithmetic.
Reasons that produce no condition
Some do not, and leaving them out is worse than writing them down with the absence recorded.
A reason about management quality has no filed figure. A reason about a product nobody has launched yet has none. A reason about an industry structure changing may have one in five years and none now.
Write them in the document with the word none where the figure goes, and a sentence saying what would change your mind instead. The thesis board holds written pillars as well as numeric conditions, and a reason of this kind belongs there with a review cadence rather than a level.
How many
Three or four reasons. Not ten.
Ten reasons means none of them is load bearing, because a position that survives nine of ten breaking was never resting on any one of them. It also means ten conditions, most of which will fire on ordinary variation, and an inbox that fires often is an inbox nobody reads.
Check yourself
What does each line of the document carry?
- The figure and the level
- The reason, the figure, the level and direction, and a note saying what a breach establishes and whether it is automated
- The reason and a target
Show the answer
Answer: B.
The four fit on a line and a half, and a reason with no figure beside it is an opinion that cannot be wrong.What should be done with a reason that has no filed figure?
- Leave it out, since it cannot be monitored
- Write it in with none where the figure goes, and a sentence saying what would change your mind, reviewed on a cadence
- Find the nearest measurable proxy
Show the answer
Answer: B.
Leaving it out pretends the position rests only on the reasons that could be measured, and it is often the reason somebody actually holds.Why is ten reasons the wrong number?
- Because the board has a limit
- Because a position that survives nine of ten breaking was never resting on any one of them, and ten conditions produce an inbox nobody reads
- Because each one takes an hour to write
Show the answer
Answer: B.
Three or four is the right number, and identifying which three is most of the work this course has been doing.Sources
- The thesis course, for the derivation of a level from a reason and for the distinction between numeric conditions and written pillars with review cadences.
What this leaves out
- The four lines in the table are illustrative. The reasons, the figures and the levels are written to show the shape of the document and no company is described by them.
- A derived level rests on whatever window of filed history was available, and the capstone courses show how far three defensible windows can move the same figure.
- Nothing here is a view on any security, and none of it is advice.