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Volatility is price movement. Permanent loss is capital that does not come back. The office measures the second.
Price movement becomes loss when it is converted into a sale: by a margin call, a redemption, or a sale made because the movement was uncomfortable.
The office has no borrowings and no redemptions, so neither applies.
Cash and short-dated government and bank paper cover twelve months of obligations, so a decline does not create a need to sell.
A decline moves the review to fundamentals: balance sheet, cash flow and competitive position.
If the cash flows underwritten at purchase are still being produced and the business can fund itself without new capital, the position is held. If not, it is sold.
A position capped at 3% of the book can fall materially without becoming the dominant fact of the portfolio.
Questions received on this note.
Because capital is needed at known dates. Twelve months of obligations are held in cash and short-dated paper rather than trying to dampen price movement inside the book.
As a prompt to re-examine the thesis, not as a signal to trade. The valuation is re-run and the office checks whether the disagreement is about something it underwrote. If it is, the position is reviewed.
By sizing: a position capped at 3% of the book can fall materially without dominating the portfolio. By preparation: the response to a given price is decided in advance.
Yes. Inaction follows from a tested thesis and a valuation threshold and is reviewed annually, which distinguishes it from neglect.
These notes describe how one family office manages its own capital. They are general information only and are not personal financial advice.
Occasional writing on market movement, sequencing risk and what price changes actually tell an owner.
