This publication is called The Conviction Play because of an argument
about conviction — and conviction has to be
built on something, or it is just stubbornness. Below: where the idea of conviction came
from, and then the three things this publication leans on to build it — knowing what
you own, knowing what makes a business durable, and knowing what is genuinely at risk.
eight people, and the books worth the time.
You can only hold a business through a fall if the business itself is the reason you hold it. Structural excellence is what makes conviction reasonable rather than reckless.
WB
Warren Buffett
On the durable advantage
Economic moatOwner earnings
Has run Berkshire Hathaway since 1965, compounding shareholder value at roughly twice the rate of the American market over sixty years — the longest such record there is.
The shareholder letters · 1977–
The durable competitive advantage: the structural reason a business can keep earning well without competitors arriving to compete the returns away. Growth without one is temporary by definition, however impressive it looks while it lasts. It is the difference between a good few years and a good business.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Warren Buffett
CM
Charlie Munger
On inversion, and paying up for quality
InversionMental models
Buffett’s partner and Berkshire’s vice-chairman from 1978 until his death in 2023, aged 99. The one who talked Buffett out of buying cheap companies and into buying good ones.
Poor Charlie’s Almanack · 2005
Invert: instead of asking how a thing succeeds, ask what would destroy it, and avoid that. He also moved the standard — from a fair business at a wonderful price to a wonderful business at a fair one, which is the harder discipline of the two and the one this site is built on.
“The big money is not in the buying and the selling, but in the waiting.”
Charlie Munger
Where it shows up hereThe five structural tests, and the rule that a moat must be named specifically and shown working rather than asserted. The “what would have to go wrong” section on every piece is Munger’s inversion, applied deliberately and written before publication. The series · what we mean by a moat.
Knowledge
Your edge is what you know
Conviction that survives a fall is rarely built from a screen. It comes from understanding a business the way its customers do — an advantage almost nobody uses, because it does not look like analysis.
PL
Peter Lynch
On earnings, and on knowing what you own
Know what you ownTen-bagger
Ran Fidelity’s Magellan fund for thirteen years to 1990, averaging about 29% a year — roughly double the market, over a period long enough that it cannot be luck.
One Up on Wall Street · 1989
Two demands. Be able to say what a company does in a sentence — not knowing what you own is the failure that precedes all the others. And follow the earnings: over a long enough period the earnings line and the share price go to the same place, which is what makes an exceptional business worth waiting for rather than chasing.
“Know what you own, and know why you own it.”
Peter Lynch
Where it shows up hereEvery profile opens with one plain sentence on how the company actually makes money, and if that sentence cannot be written honestly the company does not get covered. That is Lynch’s test rather than a house style. Twelve years of earnings sit underneath it as the central chart: knowing a business and knowing when it is available are two different jobs, and the second one is a technique.
Three of the companies here are Georgian, and that is Lynch rather than coincidence. I have banked with Bank of Georgia and with TBC, and used Georgia Capital’s pharmacies, its travel insurance and its ski lodge at Gudauri — the ordinary customer’s view, available to anyone who lives there and to nobody who only reads the filings. It is not information the market lacks. It is the difference between reading that a business works and watching it work.
Where the name comes from
Conviction
Where the name comes from. The argument that started this publication is not about which companies to own — it is about what to do once you are convinced.
SD
Stanley Druckenmiller
On size, and on changing your mind
ConcentrationPosition sizing
Ran Duquesne Capital for about thirty years at roughly 30% a year and closed it without a losing year. Was Soros’s lead manager, and put on the sterling trade.
It is not whether you are right that decides anything — it is how much you have on when you are. A career’s return tends to arrive through a handful of positions held at real size. The other half of it is that reversing a view completely, in public, on new information, is a skill rather than an embarrassment.
“The way to build long-term returns is through preservation of capital and home runs.”
Stanley Druckenmiller
Where it shows up hereThe whole premise: that a small number of positions, held at size and held through noise, is what actually decides an outcome. Conviction without a reason is just stubbornness, though — which is what everything below is for. Conviction play, defined.
Risk
What is actually at risk
The last step is knowing what you stand to lose, defined properly rather than as a measure of how much a price jumps around.
HM
Howard Marks
On what is actually at risk
Second-level thinkingMarket cycles
Co-founded Oaktree Capital in 1995 and built it into one of the largest distressed -debt investors in the world. His client memos are read far outside his own industry.
The Most Important Thing · 2011
Risk is the permanent loss of capital, not the wobbliness of a price — and a view only counts for anything if it differs from the consensus and turns out to be right. Agreeing loudly with everyone is not analysis, however well argued. Nobody puts it better.
“You can’t predict. You can prepare.”
Howard Marks
Where it shows up hereDurability is measured as the worst fall in earnings, never the worst fall in the share price. A business whose profits held through 2008 and 2020 has told you something a volatile chart has not. Drawdown, defined.
Behind them
Three names shaped the people above rather than this site
directly, and reach it only through them. Graham and Fisher shaped Buffett and Munger;
Soros shaped Druckenmiller — he ran Soros’s fund and put on the trade
Soros is best known for. That is the honest description of their influence here, and
a page about influences is a strange place to overstate one.
BG
Benjamin Graham
Behind Buffett
Margin of safetyMr Market
Taught investing at Columbia from 1928 and wrote the book the discipline starts from. Buffett was his student, then worked for him.
The Intelligent Investor · 1949
Graham separated the two questions most commentary still runs together: what a business is worth, and what the market happens to be charging for it today. He also gave the market a character — a counterparty whose mood tells you about the counterparty, not about the asset.
“The investor’s chief problem — and even his worst enemy — is likely to be himself.”
Benjamin Graham
PF
Philip Fisher
Behind Buffett
Scuttlebutt
Invested from 1931 to the 1990s and held for decades rather than years — he bought Motorola in 1955 and still owned it when he died.
Common Stocks and Uncommon Profits · 1958
Fisher’s case was that the decisive facts about a company are usually qualitative and rarely in the accounts: whether research turns into products, how the business treats customers it has already won, whether management is straight when things go badly. He went and asked, rather than only reading.
GS
George Soros
Behind Druckenmiller
Reflexivity
Ran the Quantum Fund from 1970; made about a billion dollars in a day shorting sterling in September 1992, the trade that forced the pound out of the ERM.
The Alchemy of Finance · 1987
His argument is that markets do not merely observe the world, they change it. A rising price makes capital cheaper, which makes the business genuinely stronger, which appears to justify the higher price — and the loop runs just as well downwards. A market can therefore be wrong in a self-reinforcing way for years, and while it lasts, being early is indistinguishable from being wrong.
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
George Soros
The shelf
Where to start — and the first question is whether to do this at all.
If you are not going to research individual companies, the honest answer is the
index, and it is Bogle’s: The Little Book of Common Sense Investing. Own
the whole market at the lowest cost you can find and stop. That is the right advice for
most people most of the time, and this publication exists in spite of it rather than as
an answer to it.
If you are going to pick companies, start with Lynch and build outwards:
One Up on Wall StreetPeter Lynch — knowing what you own, in a
sentence. The cheapest habit to adopt and the one that changes the most —
your edge is what you know
Common Stocks and Uncommon ProfitsPhilip Fisher — the same
job done more thoroughly: judging a business by what never reaches its
accounts
The Intelligent Investor and The Most Important ThingGraham
and Marks, read together and laid over the top — the gap between price and
value, and what it costs to be wrong about it —
what is actually at risk
The OutsidersWilliam Thorndike — capital allocation as the
job itself. The one that bears most directly on what this site looks for in a company
— what conviction is built on
The rest of the shelf, each tagged with
the idea above it belongs to. Still growing.
The Little Book of Common Sense Investing
Start here · the index routeJohn C. Bogle
John C. Bogle · 2007 — Start here if you are not going to pick individual companies. The arithmetic case for owning the whole market at the lowest cost you can find and doing nothing else. Bogle is right about most people most of the time, and this site exists in spite of that argument rather than as an answer to it.
Peter Lynch · 1989 — Start here if you are. The most useful book written for someone buying shares in individual companies, and its central demand — be able to say in a sentence what the company does — costs nothing to adopt and changes the most.
Philip Fisher · 1958 — Read after Lynch, for the same job done more thoroughly: how to judge a business by the things that never appear in its accounts — who runs it, how it treats customers, whether the research spending turns into products.
Benjamin Graham · 1949 — The origin of separating what a business is worth from what its shares cost, which is the distinction the whole site is built on. Chapters 8 and 20 are the ones; the rest is of its time.
Howard Marks · 2011 — Risk defined as the chance of permanent loss rather than as volatility. Read alongside Graham: Graham gives you the gap between price and value, Marks gives you what it costs to be wrong about it.
William Thorndike · 2012 — Eight chief executives who treated capital allocation — what to do with the money once it has been earned — as the job itself rather than an afterthought. The clearest account of why what a company does with its earnings decides the outcome as much as whether it earns them, and the reason capital allocation is one of the five structural tests here.
Charlie Munger · 2005 — Not a method and not about investing for long stretches. A collection of talks on how to think about a decision at all — worth the time once the mechanics above are familiar, and hard going before that.
Warren Buffett · 1977– — Four decades of a business being explained to its owners, in public, annually. Free to read. Best used as a worked example of the writing this site is attempting rather than as instruction.
George Soros · 1987 — Hard going and worth it for one idea: that what investors believe changes the thing they are forming beliefs about, so a market can stay wrong for a long time without anybody being irrational.
No links to booksellers, here or anywhere on this
site. A reading list that earns a commission per click is an advertisement wearing a
reading list’s clothes.
The glossary defines the
terms these ideas turn into on a company page.
This page describes how we judge a business. Nothing on it is a rule about what to pay
for one, or advice to buy or sell anything.
The Conviction Play publishes general commentary and analysis for information only. It is
not investment advice, not a personal recommendation, and not an offer or invitation to buy
or sell anything. Capital is at risk and the value of investments can fall as well as rise.