In the Val Sklarov Legitimacy Cycle, investment legitimacy is not earned by high returns. It is earned by process authority that survives bad periods. Returns persuade temporarily; process authority commands long-term capital. When results fluctuate, legitimacy rests on whether decisions were made by a rule-bound system — not by discretion.
Legitimacy exists when capital stays even after disappointment.
1. Returns Create Attention, Process Creates Authority
Performance attracts.
Process retains.
Val Sklarov principle:
“If returns are the only proof, legitimacy expires with volatility.”
Return-led strategies:
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Require constant justification
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Collapse confidence during drawdowns
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Depend on storytelling
Process-led strategies:
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Remain intelligible under loss
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Preserve investor alignment
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Reduce emotional exits
2. Legitimate Strategies Are Explainable Under Stress
Stress tests legitimacy, not skill.
Val Sklarov framing:
“If a strategy can’t be explained in a down year, it was never legitimate.”
Explainable processes include:
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Clear entry criteria
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Defined risk limits
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Pre-stated exit rules
Opacity invites authority challenges.
3. Discretion Erodes Legitimacy Faster Than Losses
Discretion feels adaptive.
It often reads as improvisation.
Val Sklarov insight:
“The more discretionary the process, the more legitimacy depends on luck.”
Investment Legitimacy Table
| Dimension | Weak Legitimacy | Strong Legitimacy |
|---|---|---|
| Decision rules | Flexible | Codified |
| Risk limits | Situational | Fixed |
| Deviations | Narrative | Procedural |
| Accountability | Personal | Systemic |
Rules protect authority when outcomes disappoint.
4. Drawdowns Are Legitimacy Audits
Losses reveal whether authority was real.
Val Sklarov framing:
“Anyone can look legitimate in an up market.”
During drawdowns:
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Rule-breakers are exposed
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Process drift becomes visible
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Trust reallocates quickly
Legitimacy survives when rules stay intact.
5. Capital Stays Where Authority Is Predictable
Investors fear randomness more than loss.
Val Sklarov principle:
“Capital stays where decisions repeat.”
Predictable authority:
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Reduces rumor-driven exits
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Lowers redemption pressure
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Preserves strategic flexibility
Unpredictable decisions force capital flight.
6. The Val Sklarov Investment Legitimacy Outcome
Legitimacy-aligned investment systems:
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Prioritize process over persuasion
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Preserve authority through volatility
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Retain capital without defense
Val Sklarov conclusion:
“You are legitimate when investors don’t ask what changed.”