---
type: business-doc
status: draft-v1
version: 0.1
created: 2026-10-13
source: user decisions 2026-10-13 (verbatim Q&A); methodology docs (process.md, risk-framework.md, signal-spec.md); marketing-synthesis.md
audience: dual — internal reference + source for C-track marketing materials (client-facing extracts per §6)
---

# Investment Process Narrative (A4)

> One-pager at heart; expanded with internals sections. The condensed client-facing version is §6.
> House voice rules apply: decisions named before markets; stress behavior is the story; no market-regurgitation.

## 1. The process in one page (client-facing core)

We run a **fundamentals-first process with a technical overlay for entry and exit timing, and mechanical risk discipline**. The portfolio is built from high-quality securities screened on free cash flow conversion, revenue growth, margin trajectory, and balance-sheet strength, spread across sectors and industries so the book never depends on one factor. Position sizing is rules-based with hard concentration caps. We rebalance on a defined calendar and act on drift between scheduled reviews.

Prices have the final word: our views propose, the market disposes — and we let prices confirm or refute them. What makes the process distinctive is how it behaves under stress. Losses are cut by rule, not by mood: any position down 20% from purchase is cut in half — no debate. Down 30%, it is sold. A market-risk framework watches for the sector-rotation patterns that have historically preceded or coincided with market drawdowns, and shifts the portfolio toward cash equivalents when those signals appear. In drawdowns, most managers decide; we have already decided.

The result we claim is not superior intelligence — it is **discipline with teeth**: every rule fires the same way in every client account, and every decision is documented.

## 2. Asset allocation

Allocation targets are set per risk profile (Fixed-income-only → Conservative → Balanced → Offensive → Equity-only, with model variants). Each profile carries explicit allocation bands per asset class, drift thresholds, and rebalancing frequency (quarterly calibration with interim drift actions when positions breach soft bands).

- Model portfolios are **centralized** (one definition per model, maintained once) with **client-level overrides** where the client requires them (e.g. tighter single-name caps, exclusions).
- Cash is managed as a residual inside the bands; de-risking under §4 shifts weight deliberately toward cash equivalents.

## 3. Security selection

**Two-factor selection: quality gate first, technical ranking second.**

### 3.1 Quality gate (fundamental, factor-diversified)

A security enters the investable universe only by passing the quality screen. Two categories are tracked deliberately — **Quality** (the majority of any portfolio) and **Growth** — because a single-category book concentrates factor exposure even when sector limits are respected.

Screened dimensions (Quality):
- **Free cash flow conversion** — earnings that become cash;
- **Revenue growth** — with attention to its stability;
- **Margin trajectory** — acceleration/deceleration of operating margins;
- **Balance-sheet strength** — leverage and refinancing risk;
- **Moat indicators** — durable competitive position (qualitative overlays on quantitative screens).

The category split (Quality core, Growth satellite) plus industry/sector band limits together control factor concentration: no single factor story, sector, or industry may dominate the book.

### 3.2 Technical ranking (the overlay — public framing)

Entry and exit timing uses a **relative-strength and rotation-based technical ranking** maintained under the firm's chartist methodology (CMT). Securities are ranked on relative performance and momentum-of-relative-performance against peers and the market, on the principle that leadership rotates and the rotation itself is information. The ranking is refreshed on a defined frequency and enters the database as scored ratings; portfolio construction consumes the scores, never ad-hoc chart calls.

*(Internal note — not for marketing/RM materials: the ranking is built on security-level Relative Rotation Graphs — the relationship between relative strength and relative momentum, JdRS/JdRM — the same framework applied at sector level in the market-risk framework §4. RRG is widely used by technical analysts and fund managers but not in separately managed accounts; this is the differentiating layer. Public framing stays "relative-strength rotation ranking". Framing/marketing development is its own follow-up item; the CMT designation underwrites the credibility of a technical methodology claim. Managed outside the engine; delivered to the DB on a defined frequency as technical scores.)*

## 4. Risk management (mechanical, with defined discretionary gates)

### 4.1 Position-level loss discipline

| Trigger | Action | Discretion |
|---|---|---|
| Position **−20%** from purchase | **Cut to half — mechanical, no debate** | none (also triggers a review warning) |
| Position **−25%** | Warning: flagged for potential discretionary review/sell | discretionary |
| Position **−30%** | **Full exit** | none (mechanical) |

Initial positions are sized so that a 30% adverse move in a full position stays within the portfolio-level risk budget (see 4.3). The ladder applies to ALL positions in a portfolio from the day the rule goes live for that client. Positions under a sell restriction (lockups, client restrictions — see 4.5) are excluded from mechanical actions and flagged for scheduled review instead.

### 4.2 Concentration and drift discipline

- **Single-name cap:** any stock reaching **6%** of portfolio weight (default, configurable per client/mandate) is **trimmed to 5%** — mechanical.
- **Overweight drift:** any position moving **50% above its initial target weight** triggers a warning and review (e.g. a 3% target at 4.5%+).
- **Underweight floor:** any position falling **below 0.5%** weight triggers a warning and review (top-up or sell decision — no zombie positions).
- Allocation-band drift (asset-class level) is caught by the drift monitor between scheduled rebalances.

### 4.3 Market-risk framework (portfolio level)

A market-risk framework monitors **sector rotation dynamics** for the patterns that have historically preceded or coincided with market drawdowns. When those signals appear, portfolios are de-risked and shifted toward cash equivalents per defined response rules.

*(Internal note — not for marketing/RM: built on sector-level Relative Rotation Graphs — rotation of sectors between quadrants (leading/weakening/lagging/improving) as drawdown-precedence evidence. Same "secret sauce" as 3.2; the two run on the same framework at different aggregation levels. No public mention of RRG by name.)*

### 4.4 Governance

- Every mechanical action is logged and attributable; discretionary reviews are documented decisions, not moods.
- Four-eyes review applies to discretionary interventions (role assignment and review cadence to be set as the firm scales — deliberately not fixed now).
- The rules in this section are firm policy: they exist once, apply everywhere, and changes are versioned.

## 5. Monitoring cadence

| Cadence | Activity |
|---|---|
| Daily | Data feeds refresh; mover monitor flags unusual moves (price, sector, region); position-level loss/concentration rules evaluate automatically |
| Weekly | Book review: drift, concentration, warnings triage (inherits the PM's existing weekly-review discipline) |
| Monthly | Reporting cycle (letters, client reports) from the reporting pipeline |
| Quarterly | Full recalibration: model targets refreshed with current fundamentals + technical scores; rebalances executed; process audit |
| Annual | Quality-criteria review; rule-parameter review (thresholds recalibrated against observed behavior) |
| Nov–Dec | **Tax-optimization review** (see §7) |

## 6. Client-facing summary (source text for decks/proposals — the "one-pager" extract)

*(§1 IS the client-facing core; decks may only simplify it, not add claims. Client-facing market line = option (c): "our views propose, the market disposes — we let prices confirm or refute them." The literal "the market is always right" stays INTERNAL credo (marketing-synthesis follow-up). Marketing follow-up: develop the technical-overlay framing per 3.2 internal note — "more specific than 'technical overlay'", CMT-credible, RRG-unnamed.)*

## 7. Follow-up build items arising

1. **Position-risk rule engine** (DB/engine): −20/−25/−30 ladder, 6%-trim/5%-reset, 50%-overweight warning, 0.5%-floor warning — as automated monitors with warning events feeding the mover/event pipeline (D-workstream, ties into B5 events library).
2. **Sector-rotation market-risk module** — internal; RRG data pipeline → DB → de-risking signals (do not expose in RM-facing tooling).
3. **Technical-score pipeline** — external RRG tooling → DB security_metric_history technical scores, on defined frequency (replaces/absorbs the DEMO_SCORES placeholder path).
4. **Marketing framing for the overlay** — separate work item (C-track): how to say "technical overlay" credibly and more specifically without naming RRG; CMT as credential anchor.
5. **Tax-optimization tool** (new roadmap item, D7): assess realized + unrealized capital gains per client jurisdiction, propose rebalancings/position trims to optimize tax outcome; run annually Nov–Dec (RMs love it — RM-retention feature as much as client feature).


## 4.5 Sell-restricted positions (lockups, client restrictions)

Some positions cannot be sold for periods (share lockups to a date) or permanently (client preference or instruction). Restricted positions are **marked per portfolio** in the database (`position_restriction`: type LOCKUP | CLIENT_RESTRICTION | REGULATORY | LIQUIDITY, with optional end date or permanent), and the engine **excludes them from every sell/trim/rebalance simulation — without exception**. The engine may list them separately as *potential opportunities* when the restriction is reconsiderable (e.g. a preference from an earlier point in time the client could revisit) — information, never a forced action. Every restricted position carries a scheduled PM review — **at least annually, and staggered across the year** (not all on one date) even when the restriction is permanent.