Calibrated Conviction Sizing
Match the size of a bet to uncertainty instead of acting 100% certain
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 97%
Marks separates believing an investment thesis from pretending it is certain. The investor must see the other side, admit that the world may behave in a new way, and assign a meaningful probability to being wrong. Position size then follows that uncertainty. If a view is effectively 80/20 but the investor bets as though it is 100/0, the 20 percent outcome can create catastrophic loss. The method does not require confidence to disappear; conviction remains the reason to act. It requires language, analysis, and sizing that preserve the adverse branch. Phrases such as “I could be wrong” and “I don't know” function as reminders that action and humility can coexist.
Origin
Marks explains the rule while discussing why Oaktree's major macro calls still carried doubt and trepidation.
Core principles
- 01Belief is required to invest, but certainty is dangerous
- 02The other side of a thesis must remain visible
- 03An 80 percent view still contains a 20 percent outcome
- 04Bet size should reflect the full probability range
- 05Trepidation is compatible with responsible action
How to run it
- 1
State the thesis
Explain the evidence and mechanism that make the investment attractive.
Watch out Excitement is not a substitute for a causal case.
- 2
See the other side
Construct the strongest credible explanation for why the thesis may fail.
Pro tip Start the review with “I could be wrong, but.”
Watch out A token objection does not test real conviction.
- 3
Calibrate uncertainty
Estimate the probability and impact of the adverse branch without rounding confidence up to certainty.
Watch out An 80/20 judgement still produces the 20 percent outcome sometimes.
- 4
Size for survival
Choose an exposure that preserves the ability to continue if the adverse outcome occurs.
Watch out Betting as if you are 100 percent right converts ordinary uncertainty into ruin risk.
- 5
Act and update
Proceed despite trepidation, then revise the probability and size as new evidence arrives.
Watch out Waiting until fear disappears can mean the opportunity has passed.
In the wild
An investor believes a distressed security has an 80 percent chance of recovering but identifies a 20 percent branch in which it loses most of its value. Instead of mortgaging the portfolio to the idea, the investor sizes the position so the adverse outcome is painful but survivable.
→ The investor can express conviction without treating uncertainty as certainty.
Common mistakes
Confusing belief with certainty
A thesis can justify action without proving that no adverse outcome exists.
Betting 100/0 on an 80/20 view
The less likely branch still occurs and can create outsized damage when exposure ignores it.
Waiting for fear to vanish
In crisis investing, complete comfort often arrives only after the bargain has disappeared.
Is it for you?
Best for
Investors making consequential decisions under uncertainty with control over position size.
Not ideal for
Decisions where probabilities cannot be estimated at all or downside cannot be made survivable.
From the transcript
“Well, you you make the investment because you believe in it, but it's important to see the other side and know what you're doing.”
“The sentences that get people into trouble are I'm a hundred percent convinced that.”
“And if you if you really feel that you're a hundred percent right, and you bet like you're a hundred percent right, and it turns…”
From the episode
Howard Marks: how I make money while you worry about a market crash
Howard Marks