04 Level Governance

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Visual representation of the Level Promotion and Demotion Protocol, showing how capital trust is systematically earned, maintained, or reduced within Micro Harvesting.

📘 Level Promotion / Demotion Protocol v1.0

Policy Name: Level Promotion / Demotion Protocol
Version: v1.0
Status: ✅ LOCKED
Effective Date: December 21, 2025
Applies To: Micro Harvesting Portfolio (all active and reactivated positions)

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1. Purpose

This protocol governs how stocks advance, regress, or exit within the Micro Harvesting Level framework.

Its objectives are to:

• Regulate capital concentration

• Prevent emotional promotion and delayed demotion

• Encode trust as a function of time and behavior

• Preserve portfolio flexibility

• Ensure levels describe earned role, not optimism

Levels are governance controls, not performance rewards.

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2. Level Definitions (Operational Meaning)

• Level 1 — Probe / Discovery
  Minimal capital, high information value, optionality testing.

• Level 2–3 — Active Rotation Core
  Standard Micro Harvesting behavior with normal RTS velocity.

• Level 4 — Stabilized Contributor
  Reliable, lower-intervention positions anchored by consistency.

• Level 5 — Transitional (Implicit)
  Not explicitly labeled; represents sustained Level 4 behavior nearing graduation.

• Level 6 — Graduated Conviction
  Earned concentration reflecting long-term trust and low monitoring burden.

• SUNSET — Deactivated
  Structurally ineligible for active deployment regardless of prior performance.

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3. Governing Principles (Non-Negotiable)

1. No stock is promoted by price movement alone.

2. No stock is demoted solely due to temporary drawdown.

3. Time and behavioral compliance outweigh short-term performance.

4. Promotion is slower and rarer than demotion.

5. Demotion is neutral, not punitive.

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4. Promotion Protocol (Level Advancement)

4.1 General Eligibility

A stock may be considered for promotion only if all of the following are satisfied:

• Maintained its current level for at least one full quarter

• Demonstrated full compliance with Micro Harvesting rules

• Required no exception handling

• Exhibited a clearly defined and stable role

Promotion is opt-in, never automatic.

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4.2 Promotion Pathways

Level 1 → Level 3

• Probe phase completed

• At least one clean harvest cycle

• RTS behavior validated

Level 3 → Level 4

• Consistent harvest reliability

• Stable anchor/RTS balance

• Reduced monitoring and emotional load

Level 4 → Level 6

• Minimum of two consecutive quarters of qualifying behavior

• Capital efficiency confirmed

• No urgency-driven management required

• Portfolio-level concentration remains compliant

⚠️ Direct promotion from Level 3 to Level 6 is prohibited.

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4.3 Promotion Authority and Timing

• Promotions may occur only at quarter-end or during a documented strategy review

• Default decision is no promotion unless explicitly approved

• Familiarity or tenure alone does not justify promotion

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5. Demotion Protocol (Level Regression)

5.1 Grounds for Demotion

A stock may be demoted if any of the following conditions occur:

• Structural role degradation

• Decline in harvest reliability

• Increased monitoring or emotional burden

• Deterioration in capital efficiency

• Threat to portfolio concentration limits

Demotion does not require:

• Realized loss

• Thesis failure

• Price collapse

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5.2 Demotion Mechanics

• Demotion may be executed immediately upon trigger

• No minimum holding period is required

• Demotion does not mandate selling

• Capital may remain deployed at the lower level

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6. Level 6 Special Governance Rules

6.1 Level 6 Entry Conditions

• Promotion must originate from Level 4

• All promotion criteria must be met

• Portfolio concentration limits must remain intact

6.2 Level 6 Concentration Limits

• Soft ceiling: 30% of deployed capital

• Alert threshold: 35%

• Hard stop: 40% (no further Level 6 promotions allowed)

Breaches require:

• Demotion of one or more Level 6 stocks, or

• Capital rebalancing to restore compliance

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6.3 Level 6 Demotion Triggers

A Level 6 stock shall be demoted if:

• It begins behaving like an active trading position

• It requires frequent intervention

• It constrains portfolio flexibility

• A superior candidate requires promotion under fixed limits

Demotion from Level 6 is neutral and reversible.

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7. SUNSET Override Rule

Any stock may be moved directly to SUNSET if it:

• Becomes structurally ineligible

• No longer fits any active framework

• Is dominated by opportunity cost

SUNSET classification supersedes all levels.

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8. Record-Keeping Requirement

All promotions and demotions shall be logged with:

• Date of action

• Previous level

• New level

• Eligibility-based reason

Performance justification is not required.

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9. Behavioral Safeguards

The portfolio manager shall not:

• Promote to validate past decisions

• Delay demotion to “wait it out”

• Treat Level 6 as a badge of pride

• Re-promote without re-earning eligibility

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10. Meta-Rule

Levels describe trust, not optimism.
Trust is earned slowly and removed quickly.

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Change Log

• v1.0 — December 21, 2025
  Initial codification and lock-in of the Level Promotion / Demotion Protocol.

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