Core Principles for Compounding
Compounding delivers durable results when capital is protected, risk is measured and high quality decisions are repeated through time. The principles below provide a clear framework so that time becomes an asset rather than a variable.
Risk First
Preservation precedes growth. Define the maximum capital at risk for each decision and for each day. Use precommitted exit rules and respect them under pressure. Survival is the necessary condition for every compounding process.
- Set explicit loss limits at the position and portfolio level.
- Plan exits before entry and document the rationale.
- Review drawdowns to understand variance and exposure.
Position Sizing
Sizing translates conviction into controlled exposure. Use a repeatable method so that outcomes reflect the quality of decisions rather than fluctuations in bet size.
- Choose a fixed fraction or a rule based model and apply it consistently.
- Aim for sizes that preserve decision quality under stress.
- Use the Position Sizing Calculator to align risk with objectives.
Feedback Loops
Learning compounds when evidence is captured and reviewed. Maintain a concise record of plans, actions and outcomes, and adjust one variable at a time.
- Run a brief post trade or post decision review with the original plan attached.
- Track process metrics such as rule adherence and setup quality.
- Schedule periodic audits to retire low value behaviors.
Consistency
Consistent inputs allow the statistical edge to express itself. Focus on repeatable preparation, structured execution and calm debriefs rather than sporadic effort.
- Standardize routines for preparation and risk checks.
- Favor incremental improvement over radical change.
- Use the Compound Growth Calculator to visualize the effect of steady progress.
Compounding is less about pursuing exceptional wins and more about avoiding exceptional losses while repeating sound decisions.