Conviction
Conviction is how strongly the evidence supports a bet, a graded, honest measure of confidence, not enthusiasm. It decides which ideas deserve money, and it is the dial behind your fund’s conviction floor.
Conviction grades how strong the case for a bet is, not how certain the outcome. Your fund turns that grade into a gate: the conviction floor, a line below which the CEO simply won’t trade.
Two bets can carry the same edge on paper and deserve very different treatment, because one rests on a mountain of consistent evidence and the other on a single promising thread. The name for that difference is conviction, and a fund that grades it honestly beats one that only feels it.
01What conviction actually measures
Conviction is the answer to: how much should I trust my own estimate? It rises with the quantity, quality, and agreement of the evidence, several independent sources pointing the same way, a base rate that concurs, resolution rules read twice. It falls with thin sourcing, conflicting signals, and stories that merely sound good. Crucially, it is about the strength of the case, not the size of the payoff.
02Conviction is not certainty
High conviction on a 74% estimate still means losing one time in four, conviction says the estimate is trustworthy, not that the outcome is assured. And its imposter, enthusiasm, is easy to unmask: enthusiasm grows with how exciting the payoff looks; conviction grows only when new evidence arrives. A desk that confuses them buys drama at full price.
03From grade to gate: the floor
Inside your fund, conviction is not a mood. It is a score attached to every candidate bet, built from the research behind it. And you decide the score that money requires: the conviction floor A number you settle with your CEO in the fund’s launch interview, and adjust freely, up or down, for as long as the fund lives. Ideas below the floor stay research; ideas above it may become positions, sized to match. One dial, and it sets the temperament of the whole desk.
Raise the floor and your fund trades rarely and only on its strongest cases. Lower it and it explores more, in smaller size. Neither is right, it’s your temperament, written as a number.
04Watching conviction earn its keep
Because every bet arrives with its conviction and its reasons written down, you can audit the grade against reality: were the high-conviction calls actually better? Over weeks, that record becomes the most honest mirror a fund has, and the fastest way to sharpen how your own frame scores evidence.
Common misreads
- Reading conviction as certainty. A high grade is a strong case, not a promised result.
- Letting a big payout raise conviction. The size of the prize doesn’t change how likely the thesis is.
- Overriding the floor “just this once.” The floor exists precisely for the moments judgment wants to bend.
What to remember
- Conviction measures the strength of the case, not certainty of the result.
- High conviction can still lose, it’s a grade, not a guarantee.
- The conviction floor turns that grade into a hard gate on trades.
- You set the floor with your CEO and can move it either way.