PART 5: PORTFOLIO CONSTRUCTION & POSITION MANAGEMENT
Framework Document Structure • Part 1: Foundation & Philosophy • Part 2: The Lineage & Macro Thesis Identification • Part 3: Bitcoin — Convexity Backbone • Part 4: Tax Architecture & ROC Strategy • Part 5: Portfolio Construction & Position Management (this document) • Part 6: Convexity & Framework Integrity Scoring
Portfolio Construction & Position Management
Portfolio construction is not asset selection. Asset selection answers "what should I own?" Portfolio construction answers "how should each position behave within the whole?"
Parts 1-4 established the structural foundations. Part 5 covers both building the portfolio and maintaining it: posture classification, position sizing, wrapper routing, and the governance protocols that preserve framework integrity through market cycles. Part 6 completes the framework with CIS scoring methodology and execution mechanics.
The framework employs three behavioral postures: Torque, Ballast, and Hype. Each has distinct sizing logic, holding horizons, drawdown tolerance, and governance. Every position operates in exactly one posture.
The Three Postures Defined: Torque: Controlled convexity where you deliberately place leverage on regime forces you believe are real, durable, and capital-backed—but still early, underowned, or mis-sized by institutions. These positions have nonlinear upside to structural drivers and real underlying businesses that survive even when prices misbehave temporarily. Ballast: Capital-preserving exposure engineered for regime instability survival. These positions withstand liquidity stress, policy error, and narrative reversals without forcing portfolio liquidation. Ballast is rotation capital—you trim it after Torque runs, redeploy it into Torque during drawdowns. Hype: Unbacked convexity dependent on narrative velocity rather than capital commitment. Hype positions capture momentum-driven mispricings with strict position limits and automatic exits. They can be tactically useful but are never allowed to become load-bearing.
Why Three Postures?
Each posture exists because omitting it creates specific fragility.
Torque without Ballast produces fragility during drawdowns. Concentrated positions correlate during stress. Without Ballast, you face a binary choice: sell Torque at trough prices or hold with no dry powder. Ballast enables holding Torque through severe drawdowns while providing rotation capital.
Ballast without Torque produces stagnation. Capital preservation alone does not compound wealth. The framework's objective is probability-weighted multi-cycle outcomes—that requires Torque capturing structural tailwinds, not just survival.
Hype without governance produces ruin. Narrative-driven positions exhibit extreme reflexivity until the loop breaks. The difference between speculation and gambling is governance: position caps, stop-losses, and classification discipline.
Torque — Controlled Convexity
Torque positions are placed on regime forces the practitioner believes are real, durable, and capital-backed—structural shifts that institutions are underexposed to due to mandate constraints, compliance processes, or volatility limits.
Upside Profile: Nonlinear appreciation tied to structural drivers. Return distributions are fat-tailed: a minority of positions may deliver multi-bagger outcomes while others underperform. Underlying Reality: Real product, real customers, real strategic role that survives price collapse. Torque positions have higher recovery probability because regime forces create persistent demand. The principle—regime support increases recovery probability without guaranteeing performance—applies universally. Volatility Acceptance: Torque positions can experience 50-70% drawdowns during liquidity stress. This is the price of convexity. Position sizing and Ballast manage the behavioral challenge. Typical Allocation: 3-15% per position, 40-60% aggregate during high-conviction regimes.
What Makes a Position Torque-Eligible
Torque eligibility requires three simultaneous conditions. Missing any one disqualifies.
First: Structural tailwind from identifiable regime forces. The position must benefit directly from durable macro forces—not general beta or sector rotation. Part 2 established how to identify a regime thesis; specific forces vary by practitioner. Example: 4th Turning demographic stress, AI infrastructure buildout, defense modernization, energy constraint, monetary disorder.
Second: Business model survivability under stress. Funding secured, customer concentration manageable, balance sheet adequate for 12-24 month liquidity droughts. Many small-caps offer exceptional TAM headroom but fail this test—they need continuous capital market access. Torque-eligible small-caps have reached profitability, secured non-dilutive funding, or maintain cash runways exceeding plausible stress periods.
Third: Valuation headroom sufficient for convex payoff. Addressable market significantly larger than current market cap—often 5× or more. A $500 billion company faces arithmetic constraints on 20× returns. Torque skews toward small and mid-caps where headroom exists, but market cap alone doesn't qualify or disqualify.
Torque Position Sizing
Position sizing maps directly from CIS scoring (Part 6) through four allocation bands. Scores reflect composite conviction across convexity, risk, macro alignment, and execution. Higher scores earn larger sizing; the bands enforce proportionality without requiring manual judgment at every threshold.
| CIS Score | Target Allocation | Sizing Rationale |
|---|---|---|
| 70+ | 8-15% | Core Torque position. Full conviction sizing, subject to concentration limits. Allocations above 15% require documented override; 18% absolute maximum |
| 60-69 | 4-8% | Standard Torque position. Allocation-worthy but sizing is constrained until conviction strengthens across components |
| 50-59 | 2-4% | Starter position. Thesis is incomplete or fragile; size reflects probe intent, not commitment |
| <50 | 0% | Not allocation-worthy. Avoid, trim, or reclassify |
Concentration limits apply irrespective of CIS: no single Torque position exceeds 15% without documented override (18% absolute maximum), top three should not exceed 35% combined, top five should not exceed 50%. Bitcoin operates under separate rules.
Torque Wrapper Routing
Torque positions route to wrappers based on expected turnover and distribution characteristics.
Roth IRA: Primary destination for high-turnover Torque positions. Tax-free compounding regardless of holding period maximizes benefit for positions requiring tactical rotation.
Taxable: Appropriate for buy-and-hold Torque with expected holding periods exceeding 1 year (LTCG treatment), or when Roth space is exhausted.
Pre-Tax: Viable for Torque when practitioner is in accumulation phase with decades until withdrawal. Ordinary income treatment on withdrawal is less relevant when current marginal rate exceeds expected retirement rate. Employer match provides immediate return regardless of wrapper type. This assumes planned bracket arbitrage or later Roth conversion consistent with Part 4.
Earnings Proximity: Positions entering earnings within T-5 must be trimmed to 3% maximum. Non-negotiable. Proceeds park in Ballast; rebuild post-earnings if thesis confirmed. Momentum Tripwires: Exit when all three momentum dimensions turn negative—even if CIS remains high. Capital preservation overrides conviction. Re-entry permitted when momentum repairs. Drawdown Tolerance: Hold through large drawdowns when Ballast reserves are adequate and momentum dimensions remain mixed or positive. Selling Torque at trough prices is a framework failure. CIS Review Cadence: Weekly review, monthly formal reassessment. Material news triggers immediate review.
Ballast — Strategic Reserves
Ballast is strategic reserves enabling aggressive Torque sizing—providing liquidity, stability, and rotation capital during stress.
Stress Resilience: Positions that withstand liquidity withdrawal, policy error, and narrative reversals. These businesses fund dividends even when credit tightens and maintain operations without capital market access. Rotation Function: Internal capital for rebalancing. Trim Ballast after Torque runs; deploy into Torque during drawdowns. This rotation happens without external cash or touching Bitcoin. Yield Characteristics: Ballast positions may generate income through dividends or distributions, but yield is secondary to survivability. STRC exemplifies prototypical Ballast—approximately 11% yield as of January 2026 with ROC treatment. (Yield varies with price; ROC characterization is tax-year dependent.) Ballast classification follows from stress resilience; income is a consequence of business quality, not a selection criterion. Typical Allocation: 2-8% per position, 20-35% aggregate. Increases during risk-off, decreases during high-conviction Torque opportunities.
What Makes a Position Ballast-Eligible
The position must satisfy at least three of five criteria:
Fortress balance sheet: Net cash or minimal leverage, no near-term refinancing, investment-grade or equivalent strength.
Diversified revenue: No single customer exceeds 15% of revenue, geographic diversification, not dependent on single product cycle.
Durable cash generation: Consistent free cash flow through cycles, dividend history, capital allocation discipline.
Low factor correlation: Limited sensitivity to equity beta, real rates, credit spreads. Moves independently of Torque during stress.
Liquidity-resilient valuation: Reasonable multiples with downside limited by valuation floor, not growth narrative.
Ballast Position Sizing
Ballast CIS evaluates survivability and yield quality over upside convexity. The Convexity component (40% weight) structurally constrains Ballast scores because capital-preserving positions lack the TAM headroom that drives high Convexity sub-scores. Ballast scores therefore run lower than Torque scores for equivalently strong positions. The same four-band structure applies, with allocation ranges scaled to Ballast's role as reserve capital rather than growth engine.
| CIS Score | Target Allocation | Sizing Rationale |
|---|---|---|
| 70+ | 5-8% | Core Ballast position. Survivability and macro alignment strong enough to overcome the structural Convexity headwind |
| 60-69 | 3-5% | Standard Ballast position. Provides capital preservation and rotation utility within the portfolio |
| 50-59 | 1-3% | Marginal Ballast. Must meet eligibility criteria (3 of 5) and demonstrate improving quality or face replacement |
| <50 | 0% | Not Ballast-worthy. Exit or replace |
Single Ballast positions can reach 10% if providing exceptional stability. Aggregate Ballast should not exceed 40%. Ballast is intentionally limited to best-in-class survivors; superior candidates replace inferior holdings rather than expanding count.
Ballast Wrapper Routing
Taxable: Primary destination, especially for ROC-characterized distributions. Tax-loss harvesting opportunities also favor taxable placement.
Pre-Tax: Appropriate for ordinary income generators (bond funds, REITs with non-ROC distributions).
Roth: Generally inefficient—Roth's benefits are maximized by high-growth positions.
Rotation Triggers: Trim Ballast after Torque runs; deploy into Torque during drawdowns when momentum remains constructive. Primary mechanism for buying low without external cash. Yield Deployment: Distributions accumulate as deployment capital. During stress or Bitcoin dislocations, yield funds DCA without selling depressed positions. Minimum Reserve: Maintain at least 15% aggregate Ballast even during high-conviction Torque opportunities. Complete depletion creates fragility. Quality Threshold: Positions must meet eligibility criteria (3 of 5). Positions falling below threshold are replaced. Superior candidates replace inferior holdings. CIS Review Cadence: Quarterly unless material deterioration observed.
Hype — Disciplined Speculation
Hype acknowledges that markets occasionally misprice assets due to sentiment extremes, regulatory changes, or technical factors. Some opportunities lack structural support but offer asymmetric short-term payoffs when governed properly.
Narrative Dependence: Price driven by attention and reflexive feedback loops rather than fundamental value. When narrative breaks, there is no floor. Tight Governance: Strict stop-losses (15-25%), small sizing (2-5% max), short horizons (weeks to months). Non-negotiable because Hype lacks structural support for holding through drawdowns. No Recovery Expectation: Hype positions may not recover because the system never needed them. A meme stock collapsing 80% may never return. A Torque position collapsing 50% can recover because regime forces persist. Hype has no backstop. Typical Allocation: 1-5% per position, strict 10% aggregate cap. Many portfolios appropriately hold 0% Hype.
What Makes a Position Hype (Not Torque)
Misclassifying Hype as Torque is the primary catastrophic failure mode. A position is Hype when it exhibits any of:
Price-attention reflexivity without business momentum. Price gains drive attention which drives buying which drives price. This loop can generate 500% returns in months and give back 90% in weeks. If you cannot identify sustainable business improvement, it's Hype.
Valuation disconnected from plausible scenarios. A $500 million company with $10 million revenue at 50× sales requires assumptions that strain credibility. Can still be profitable as Hype; should not be held as Torque.
Funding dependent on continuous capital raises. Pre-revenue companies burning cash with no path to profitability. When capital markets tighten, these have no path forward.
Moat erosion visible but unpriced. Competitive advantage degrading but price hasn't reflected it. Can work as Hype (ride narrative until it breaks), not as Torque (no recovery when reality asserts).
Momentum is the thesis—and momentum is the exit signal. Entry Discipline: Enter only on technical breakouts with volume confirmation. Buy into strength, not weakness. No value in averaging into positions without fundamental anchor. Stop-Loss Protocol: Automatic exit at 15-25% below entry. No widening stops, no averaging down, no converting to "long-term hold." Exit and reassess. Profit-Taking: Partial profits at 50% gain (one-third), additional at 100% (another third), remainder runs with stop raised to breakeven. Time Limit: Exit positions that haven't worked within 3-6 months rather than waiting for stop-loss. Reclassification Prohibition: Hype cannot be reclassified to Torque to justify holding through stop-loss breach. Post-hoc reclassification to avoid loss recognition is how Hype destroys portfolios.
Position Management
With portfolio construction established—postures assigned, positions sized, wrappers selected—the framework turns to ongoing governance. Position management preserves framework integrity through market cycles via systematic protocols for earnings exposure, momentum monitoring, rebalancing, regime awareness, and thesis validation.
Earnings Proximity Protocol
Earnings announcements are binary events that can move positions 10-30% independent of thesis quality. The framework treats earnings as idiosyncratic risk requiring position sizing discipline.
Core Principle: Any position entering earnings within T-5 trading days must not exceed 3% of portfolio value. Position-specific cap, not portfolio-wide. Positions without near-term earnings maintain standard allocation.
Conviction about business quality does not predict earnings reaction. A company can beat estimates and decline because expectations were higher; miss estimates and rally because the miss was less severe than feared.
Position: Defense contractor at 10% allocation, earnings in T-4 days Action: Trim to 3% allocation (sell 7% of portfolio value in this name) Proceeds: Park in liquidity sleeve or STRC temporarily Post-earnings: If thesis confirmed, rebuild to 10% over 2-4 weeks per decision tree below
Protocol Rules
| Timeframe | Rule | Rationale |
|---|---|---|
| T-21 to T-6 | Initiation blackout for positions priced for perfection | Avoid entering at maximum expectation levels |
| T-5 to T-1 | Cap the position entering earnings at 3% of portfolio | Limit binary event exposure for that specific name |
| T+0 | No action, observe reaction | Let market process information |
| T+1 to T+5 | Assessment window | Evaluate thesis impact from results and call |
| T+6 onwards | Rebuild eligible if thesis confirmed | Gradually restore position sizing |
Post-Earnings Decision Tree
Thesis confirmed: Results support original thesis. Rebuild over 2-4 weeks to target allocation.
Thesis damaged: Results reveal fundamental problems. Complete exit irrespective of loss magnitude. Do not average down.
Thesis uncertain: Results mixed. Maintain reduced exposure until clarity emerges.
Exempt Positions
Bitcoin: No earnings. Governed by Part 3 protocols.
Broad index ETFs: Diversified exposure eliminates single-name earnings risk.
Ballast positions ≤5% where earnings are not thesis-critical: Exempt from the earnings proximity cap. Administrative burden exceeds risk management benefit for stable positions where earnings do not threaten classification.
Momentum Heuristics — A Newtonian Metaphor
The framework borrows loosely from Newtonian physics as metaphor—not literal mechanics, but heuristics for trend persistence and decision thresholds. Useful shortcuts, not predictive laws.
First Law Heuristic: Inertia
Positions exhibiting strong momentum deserve patience. A Torque position making new highs with broad participation is "in motion"—default action is hold. A position stalled for months is "at rest"—requires external force to justify continued holding.
Practical application: Review stagnant positions more frequently. Positions flat 90+ days deserve thesis reexamination; trending positions require only maintenance monitoring.
Second Law Heuristic: Proportionality
Larger positions require larger catalysts. Trimming a 15% position on minor technical weakness is overreaction; the same signal on a 3% position might warrant action.
Practical application: Scale thesis-change thresholds to position size. A 12% Torque requires material fundamental change to justify trim. A 3% developing position can exit on technical deterioration alone.
Third Law Heuristic: Consequences
Every action has consequences elsewhere. Trimming Torque increases Ballast; deploying Ballast decreases reserves. Portfolio construction is zero-sum allocation within capital constraints.
Practical application: Before any action, identify consequences. "Where do proceeds go?" "Which position am I implicitly underweighting?"
Momentum Dimensions
Three dimensions evaluated before full sizing:
Absolute momentum: Distance from 52-week high. Within 10% = healthy; 25%+ below = correction; 40%+ = severe distress.
Relative momentum: Performance versus sector and market. Distinguishes idiosyncratic problems from systematic stress.
Breadth: Percentage of related names making new highs. Strong breadth confirms fundamental support; narrow leadership warns of exhaustion.
| Momentum Alignment | Sizing Action |
|---|---|
| All 3 dimensions positive | Full sizing per CIS allocation table |
| 1 dimension breaks | Reduce sizing 25-30%, monitor closely |
| 2 dimensions break | Watch status, minimal new exposure |
| All 3 dimensions negative | Exit even if CIS score remains high |
The final row is a tripwire, not a guideline. A high-CIS position with all three dimensions negative has broken structurally. Exit, reassess, re-enter when momentum repairs.
Doctrinal Justification — Momentum Overrides Conviction: Capital preservation and optionality take precedence over thesis validation. A position can be fundamentally correct and still destroy capital through extended technical deterioration. Exiting preserves capital and optionality for re-entry at better prices. Re-entry is explicitly permitted once momentum repairs. The exit acknowledges that the market is not currently validating the thesis; holding incurs opportunity cost the framework refuses to accept. Conviction without confirmation is speculation; the framework demands both.
Sector Allocation Through Regime Forces
The framework allocates by regime exposure, not sector. Sectors are proxies for structural forces in the practitioner's thesis.
Part 2 established how to identify regime forces; specific forces vary by practitioner. Example: 4th Turning demographic stress, AI infrastructure buildout, defense modernization, energy constraint, monetary disorder. Sectors matter to the extent they capture identified forces.
Regime-Aligned Sectors (Illustrative)
The methodology—mapping structural forces to sector exposure—remains constant; specific sectors change with thesis.
Defense and Aerospace: Government customers, multi-year visibility, pricing power, strong balance sheets. Primary Torque when conviction high.
AI Infrastructure: Semiconductors, datacenter buildout, power delivery. Focus on picks-and-shovels with order backlogs over speculative plays.
Energy Infrastructure: Traditional and nuclear power, grid modernization. Uranium, midstream, nuclear renaissance offer convexity with fundamentals.
Industrials and Reshoring: Domestic manufacturing, construction equipment, automation. Selectivity required—many industrials are cyclical without structural tailwind.
Regime-Challenged Sectors (Illustrative)
Under example thesis, these face headwinds. Different thesis might reach different conclusions.
Long-duration growth: Unprofitable tech dependent on low rates. Hype if at all, never Torque.
Consumer discretionary without pricing power: Margin pressure from wages and inputs without pass-through ability.
Commercial real estate: Secular office decline, refinancing wall, unsustainable leverage. Selective opportunities exist but sector-wide exposure is misaligned.
Sector Allocation Limits
Regime concentration is intentional, but limits prevent single-sector dominance:
| Constraint | Limit | Rationale |
|---|---|---|
| Any single sector (ex-Bitcoin) | 30% maximum | Limits idiosyncratic sector risk |
| Top 2 sectors combined | 50% maximum | Ensures minimum diversification |
| Regime-challenged sectors | 10% maximum | Tactical only, never core |
Bitcoin is excluded from sector limits—it is the convexity backbone with separate governance (Part 3), not a sector allocation.
High-conviction Torque regimes require diversification across multiple expressions of the same regime force, not single-sector concentration.
A practitioner bullish on AI infrastructure expresses that thesis through semiconductors, datacenter REITs, power infrastructure, and cooling technology—not 45% in one sector.
Rebalancing as Conviction Expression
Rebalancing is not mechanical. The framework rejects calendar-based and threshold-based rebalancing—both ignore information content in price moves. A position up 50% appreciated for a reason; mechanically trimming sacrifices winners. A position down 30% may have declined because thesis is breaking; mechanically adding catches falling knives.
Conviction-Driven Rebalancing
Rebalancing follows CIS reassessment, not allocation drift.
Upward drift: Recalculate CIS. If conviction unchanged, let winners run. If conviction declined, trim. Question: "Does my conviction support this allocation?"
Downward drift: Recalculate CIS. If conviction unchanged and decline is temporary, add. If conviction declined, reduce or exit. Question: "Does this decline change my thesis?"
Rebalancing Frequency
Weekly CIS review, monthly formal assessment. Intra-week only when:
- Position moves 15%+ in single week
- Earnings proximity protocol triggers
- Tripwire breached
- Material news changes thesis
Tax-Aware Rebalancing
Part 4 established wrapper engineering as the dominant structural return multiplier. Wrapper placement compounds geometrically; tax drag is a structural headwind that turnover amplifies. Rebalancing must account for these consequences.
Assumptions: $100,000 initial investment, 10% annual pre-tax return, 30-year horizon, 25% blended tax rate on realized gains, identical asset and identical trades in both scenarios. Scenario A — Taxable Account (Annual Turnover): Pre-tax growth taxed annually at 25% → effective after-tax return ~7.5% Terminal value: $100,000 × (1.075)³⁰ ≈ $875,000 Scenario B — Tax-Advantaged Account (Roth): Full 10% compounds tax-free for 30 years Terminal value: $100,000 × (1.10)³⁰ ≈ $1,745,000 Difference: ~$870,000 (2× terminal wealth) from wrapper placement alone. Arithmetic, not opinion.
In Roth: Rebalance freely. Zero friction—primary argument for active Torque strategies in Roth.
In Taxable: Prefer new contributions over selling. When sales necessary, prioritize long-term holdings and coordinate with tax-loss harvesting.
Across Wrappers: Use rebalancing to optimize wrapper placement based on updated position characteristics.
Liquidity & Correlation Regime Monitoring
Position management adapts to liquidity and correlation regimes, not just individual price action. Elevated cross-asset correlation and liquidity withdrawal amplify Torque drawdowns beyond what single-name analysis predicts.
- Stressed regime indicators: VIX sustained above 25, credit spreads widening, Torque positions correlating above 0.7
- Response protocol: Pause new Torque adds; enforce posture limits strictly; consider reducing gross exposure by 10-20%
- Resumption: Regime stress indicators normalize for 2+ weeks before resuming standard positioning
This is regime-aware throttling, not market timing. The framework does not predict direction; it reduces exposure when correlation compression makes position-level diversification unreliable.
Add / Freeze Rules & Maximum Size Gates
Adding to positions requires discipline. Uncontrolled averaging down and concentration creep are framework failures, not conviction.
- Freeze trigger: Positions down 20%+ from cost basis cannot receive additional capital without confirming signal (higher low, reclaim of key level, or new thesis-supporting information)
- Maximum size gate: No position may exceed 15% without explicit documented override; 18% absolute maximum regardless of override; no Hype position may exceed 5% under any circumstances
- Add cadence: Scaling into positions should occur over weeks, not days; no more than 25% of target allocation added in single week
Thesis Drift & Invalidation Protocol
Price volatility and thesis failure require different responses. Each position should have 1-3 core thesis assertions documented at entry.
- Thesis assertion examples: "Defense budget growth sustains through 2027," "Datacenter capex cycle has 3+ years remaining," "Management executing on margin expansion"
- Invalidation trigger: Violation of a core thesis assertion triggers immediate reassessment regardless of price action
- Response: Thesis-damaged positions are downgraded or exited; price recovery does not rehabilitate broken thesis
Distinguish: momentum rules handle price-driven volatility; this protocol handles fundamental deterioration.
Known Event Risk Beyond Earnings
Binary events beyond earnings—regulatory decisions, policy announcements, contract awards, insider lockup expirations—require similar treatment.
- Identification: Maintain calendar of known binary events for each position
- Response: Cap exposure or hedge depending on posture; apply earnings-proximity-style sizing discipline
- Exclusion: Diffuse macro noise (Fed meetings, election cycles) does not trigger position-specific action unless directly material to thesis
Framework Parameterization & Overrides
The ACF distinguishes between doctrine, parameters, and overrides.
Doctrine — Non-Negotiable Principles: These define what the framework is. Violating them means you are no longer implementing ACF. • Three-posture classification (Torque/Ballast/Hype) for all positions • Tax wrapper optimization as dominant structural return multiplier • Bitcoin as non-negotiable convexity backbone with separate governance • Momentum deterioration triggers exit regardless of conviction • Hype positions require stop-losses and cannot be reclassified to avoid them • Ballast eligibility requires meeting hard criteria, not approximations Parameters — Tunable Thresholds: These can be adjusted for valid, articulated reasons while preserving framework integrity. • CIS scoring component weights (default: C 40%, R 25%, M 25%, E 10%) • Position sizing bands within postures (e.g., 3-15% for Torque) • Momentum dimension thresholds (e.g., 10%/25%/40% from 52-week high) • Earnings proximity cap level (default: 3%) • Concentration limits (default: 15% single position, 18% absolute max; 35% top three) • Ballast aggregate ceiling (default: 40%) Overrides — Explicit User Decisions: These are conscious deviations from default parameters, not silent drift. • Must be intentional, documented, and time-bounded • Must articulate the reasoning and expected conditions for reversion • Must remain consistent with framework objectives • The framework remains the baseline; overrides are exceptions, not evolution
Doctrine changes mean framework abandonment. Parameter changes mean calibration. Override decisions mean temporary deviation for articulated reasons.
Portfolio Boundary & Concentration Scope
The portfolio boundary is the household aggregate across all wrappers—Roth, pre-tax, taxable, and Bitcoin cold storage. All concentration limits (single position, top three, top five, sector) apply to this aggregate, not to individual accounts or wrappers. A position held across multiple wrappers sums to one aggregate exposure.
Wrapper-level concentration is permitted when aggregate exposure remains within limits. A Roth IRA may hold 100% of its value in a single position without violating framework rules, provided aggregate portfolio exposure to that position does not exceed applicable caps. When a wrapper is intentionally concentrated in a single name, it must be designated and governed as a single-name sleeve: drift monitoring required, rebalancing or trimming required if aggregate exposure breaches limits, and the designation must be explicit and documented. Single-name sleeves are a governance structure, not an exception mechanism.
This example reflects one practitioner's implementation based on their specific regime thesis. Different theses would produce different sector allocations while following the same framework methodology. Portfolio context: $500,000 total portfolio, high conviction in AI infrastructure and defense modernization thesis, moderate risk tolerance, 15-year horizon. Bitcoin allocation (20%): $100,000 in cold storage per Part 3 guidance. Not classified as Torque, Ballast, or Hype—operates under separate governance as convexity backbone. Taxable wrapper with buy/borrow/die strategy. Torque allocation (45%): $225,000 across 8 positions • AI semiconductor leader (12%): CIS 75, thesis confirmed, near 52-week high. Roth wrapper for flexibility. • Defense prime contractor (10%): CIS 72, multi-year contract backlog. Roth wrapper. • Nuclear renaissance play (8%): CIS 70, uranium supply/demand inflection. Taxable, long-term hold. • AI datacenter REIT (6%): CIS 67, hyperscaler expansion phase. Taxable; REIT distributions typically ordinary income. • Defense mid-cap specialist (5%): CIS 65, scaling position. Roth. • Grid infrastructure (4%): CIS 62, electrification tailwind. Taxable. • Small-cap AI picks-and-shovels (3%): CIS 57, early thesis development. Roth. • Reshoring beneficiary (2%): CIS 53, monitoring for thesis confirmation. Taxable. Ballast allocation (30%): $150,000 across 4 positions • STRC preferred (12%): CIS 71, ~11% ROC yield as of Jan 2026 (verify annually via issuer 1099-DIV). Taxable, provides deployment capital. • Dividend growth ETF (8%): CIS 70, broad quality exposure. Taxable. • Liquidity parking sleeve (6%): CIS N/A, cash-equivalent reserve for rebalancing and earnings-trim proceeds. Taxable; not structural Ballast. • Defensive healthcare (4%): CIS 62, non-cyclical stability. Pre-tax (ordinary dividends). Hype allocation (5%): $25,000 across 2 positions • Momentum breakout play (3%): CIS 54, 20% stop-loss. Taxable (short-term expected). • Speculative small-cap (2%): CIS 51, 25% stop-loss. Roth (if wins, tax-free; if loses, limited impact). Aggregate metrics: Torque/Ballast/Hype ratio of 45/30/5 (plus 20% Bitcoin backbone). Average weighted CIS of 68. Roth allocation focused on highest-turnover Torque, taxable on stable Ballast and long-duration holds, minimal pre-tax. Earnings proximity: Defense prime contractor reports in T-3 days. Current 10% position trimmed to 3% ($15,000). Proceeds parked in liquidity sleeve. Post-earnings rebuild planned if thesis confirmed.
End of Part 5: Portfolio Construction & Position Management Part 5 established the three-posture framework (Torque/Ballast/Hype) for position classification, then detailed the governance protocols that maintain integrity: earnings proximity caps, momentum tripwires, regime monitoring, add/freeze discipline, thesis validation, and the doctrine/parameters/overrides hierarchy. The framework translates to any market by substituting local proxies for regime forces while preserving the core principle: classify positions by behavioral expectation, not asset type, and govern accordingly. Continue to Part 6: Convexity & Framework Integrity Scoring Operationalizing the Convexity Integrity Score: component methodology, scoring calibration, and complete framework integration.
This framework does not constitute investment, tax, or legal advice. Consult qualified professionals for your specific situation.