The Builder

Concepts that are relevant to you

Concentration risk

The risk that comes from having a large portion of your wealth in a single asset, sector, or type of investment. When one position represents a significant share of your net worth, its performance has an outsized effect on your overall financial position — in both directions. Builders are particularly exposed to this because high conviction naturally leads to concentration.

Correlation

The degree to which different investments move together. Two investments that seem unrelated — a tech startup and a real estate deal, for example — may both deteriorate simultaneously in a broad market downturn. High correlation between positions means your diversification is less real than it appears. Understanding correlation is the difference between a portfolio that's genuinely diversified and one that just looks like it is.

Drawdown

The peak-to-trough decline in the value of an investment or portfolio. A 50% drawdown requires a 100% gain just to break even. Builders tend to be comfortable with drawdowns intellectually but occasionally underestimate what a large one feels like when it's happening — and what it requires to recover from.

Position sizing

The discipline of deciding how much capital to allocate to any single investment relative to your total portfolio. Having a conviction about an idea is separate from deciding how large a position to take. Systematic position sizing — setting a maximum percentage before you go in, not after — is one of the highest-leverage habits a Builder can develop.

Liquidity

How quickly and easily an asset can be converted to cash without significantly affecting its price. Private market investments, real estate, and illiquid funds lock up capital for years. Builders often have high illiquidity in their portfolios because the best opportunities tend to be illiquid. The risk is being caught needing cash when all your capital is tied up.

Leverage

Using borrowed money to amplify investment returns. Leverage multiplies both gains and losses. In a concentrated portfolio, leverage dramatically increases the risk of a loss that's difficult or impossible to recover from. Worth understanding precisely before using it.

Compounding

The process by which returns generate further returns over time. The single most powerful force in long-term wealth building — and the one most damaged by large drawdowns, which reset the compounding base. Protecting against catastrophic loss is not separate from compounding — it's the foundation of it.