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. What follows is that chain, in the order
it actually works: where the idea came from, what makes it safe to hold, when to act on
it, and what is genuinely at risk. Four steps, eight people, and the books
worth the time.
Step 01
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.
GS
George Soros
On why a market can stay wrong
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
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.
Step 02
What conviction is built on
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.
Step 03
The readiness to act
Knowing a company is exceptional tells you nothing about when. Earnings do — which is why they are the spine of every page here.
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 carries twelve years of earnings as the central chart. If that sentence cannot be written honestly, the company does not get covered.
Step 04
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
Two names shaped Buffett and Munger, and reach this site through
them rather than directly. 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.
The shelf
Books worth the time, each tagged with the step of the argument it
belongs to, so the list reads as a route through the page rather than an appendix
bolted to the end of it. Still growing.
Peter Lynch · 1989 — If you buy shares in individual companies and you read only one book, read this one. Its central demand — be able to say what the company does — costs nothing to adopt and changes the most.
Philip Fisher · 1958 — The argument for judging a business by things that never appear in the accounts.
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.
Where to start. Lynch. If you buy shares in individual companies and you read
only one book, make it One Up on Wall Street — it is the most readable of
them, and its central demand costs nothing to adopt and changes the most.
If you want the chain rather than one book, read it in the order the argument runs:
One Up on Wall Streetknowing what you own, and following the
earnings — step 03
Buffett’s shareholder letterswhat makes a business worth
owning at all — step 02
Marks’s memosfree, and the fastest route to thinking about
risk properly — step 04
The Alchemy of Financelast, and only if the first three took
— step 01
These are influences, not a syllabus, and not an endorsement of everything any of
them has said or done. Several of them disagree with each other, sharply, and the
disagreements are the useful part.
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.