Investing term

What is Conviction?

How strong your evidence is for a thesis — and therefore how much capital it earns.

Conviction is how strong your evidence is for an investment thesis — and it should govern how much money you put behind it. High conviction earns a larger position; a hunch earns a small one or none. The discipline is matching position size to the actual quality of your reasoning, not to how exciting the story feels.

For example

You've studied a company deeply and the case is strong, so it earns a 5% position; a tempting tip you can't verify earns 0.5% — sized to your conviction.

Conviction is taught hands-on in Stage 13 — Active Investing: Should You Even Bother?.

See the lesson →

Related terms

Active investingPicking individual stocks (or actively-managed funds) instead of just buying the index.CatalystThe event or condition that will close the valuation gap — and an estimated timeline.Circle of competenceThe set of industries, business models, and types of companies you actually understand well enough to evaluate.Decision journalA pre-trade written record of your thesis, sizing, and what would change your mind.
← Back to the full glossary