@v587d/capital-generation 2.6.4 → 2.7.0

package/selected-skills/investment-skills/skills/buffett-investment-framework/references/05-valuation.md

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+# Valuation and Price Discipline
+
+Use these cards as evidence-bounded analytical prompts derived from Buffett and
+Berkshire writings. Apply them to supplied evidence, preserve each card’s limits, and
+return unresolved findings when prerequisites are missing.
+
+Read this file when selecting a valuation method, normalizing the base, testing growth,
+sensitivity, or price.
+Load only the cards selected by the router; do not load the whole module by default.
+Abbreviated corroboration citations resolve in the [source key](00-source-key.md).
+
+## Card Index
+
+| Card | Decision question |
+| --- | --- |
+| [V01](#v01) | What conservative range represents the present value of cash owners can remove over the business’s remaining life? |
+| [V02](#v02) | Which method fits predictability, assets, growth, and capital structure, and what can simpler measures legitimately check? |
+| [V03](#v03) | Which reconciled earnings or owner-cash base should valuation capitalize across the relevant cycle? |
+| [V04](#v04) | Does projected growth increase future owner cash after funding its capital requirements? |
+| [V05](#v05) | Which assumptions drive the range, how fragile are they, and which missing facts block a conclusion? |
+| [V06](#v06) | Is the price-value gap adequate for uncertainty, resilience, financing, and downside shown by the evidence? |
+
+## Complete Cards
+
+<a id="v01"></a>
+
+### V01 — Define Intrinsic Value as a Range of Owner Cash
+
+- **Decision question:** What conservative range represents the present value of cash
+  owners can remove over the business’s remaining life?
+- **Guidance:** Model owner cash, reinvestment, timing, and discounting explicitly and
+  express value as a range reflecting uncertainty.
+- **Use when:** Evidence supports an explicit owner-cash valuation rather than only
+  asset or relative checks.
+- **Analytical actions:** Define removable owner cash; build supported cash-flow and
+  terminal scenarios; state discounting assumptions and range-invalidating variables.
+- **Output:** An intrinsic-value range tied to operating, reinvestment, timing, and
+  discount assumptions.
+- **Limits:** Analysts can produce different ranges; no universal discount rate or
+  terminal method applies, and unbounded cash flows leave value unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1994 annual letter** — *defines*: intrinsic value discounted
+    owner cash.
+  - **Berkshire Hathaway 1999 annual letter** — *implements*: estimate intrinsic value
+    as a range.
+- **Corroboration:** EWB §II.D; EWB §V.E; OM1996; BH2014.
+
+<a id="v02"></a>
+
+### V02 — Match the Valuation Method to Business Economics and Use Shortcuts Only as Checks
+
+- **Decision question:** Which method fits predictability, assets, growth, and capital
+  structure, and what can simpler measures legitimately check?
+- **Guidance:** Select the method from the economics and evidence; treat multiples and
+  book value as checks unless linked to owner cash or realizable assets.
+- **Use when:** Before valuing an asset-heavy, cyclical, financial, high-growth, or
+  structurally changing business.
+- **Analytical actions:** Classify value drivers and forecastability; justify the
+  primary method and checks; explain why rejected methods misstate economics.
+- **Output:** A valuation-method memo naming the primary method, checks, rejected
+  alternatives, and unresolved method risk.
+- **Limits:** No method repairs unforecastable inputs; if no method has defensible
+  inputs, valuation remains unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1989 annual letter** — *defines*: intrinsic value discounted
+    future cash flows.
+  - **Berkshire Hathaway 1989 annual letter** — *qualifies*: book value is an imperfect
+    proxy for intrinsic value.
+- **Corroboration:** EWB §V.D; OM1996; BH2002; BH2014.
+
+<a id="v03"></a>
+
+### V03 — Select a Defensible Normalized Base for Valuation
+
+- **Decision question:** Which reconciled earnings or owner-cash base should valuation
+  capitalize across the relevant cycle?
+- **Guidance:** Derive the base from F05 while preserving segment differences, cycles,
+  unusual items, acquisition effects, and genuine costs.
+- **Use when:** Valuation depends on normalized earnings, margins, cash conversion, or
+  cycle position.
+- **Analytical actions:** Compare reported and normalized periods; justify cycle and
+  segment weights; show alternative bases and valuation consequences.
+- **Output:** A valuation-base bridge with selected range, rejected periods, cycle
+  rationale, and sensitivities.
+- **Limits:** Cycle endpoints are uncertain and structural change can invalidate
+  history; an indefensible period leaves the base unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1983 annual letter** — *implements*: separate operating
+    earnings from unusual gains.
+  - **Berkshire Hathaway 2019 annual letter** — *qualifies*: separate operating earnings
+    from investment gyrations.
+- **Corroboration:** EWB §V.B; BH2002; BH2023.
+
+<a id="v04"></a>
+
+### V04 — Value Growth Only Through Incremental Capital Economics
+
+- **Decision question:** Does projected growth increase future owner cash after funding
+  its capital requirements?
+- **Guidance:** Credit growth only through supported changes in owner cash and
+  incremental returns; reduce expectations for capital hunger or return decay.
+- **Use when:** Growth contributes materially to valuation or thesis.
+- **Analytical actions:** Reconcile growth with incremental capital and owner cash;
+  compare returns with opportunity cost; sensitize scale, runway, and funding.
+- **Output:** A growth-value bridge separating revenue growth, required capital,
+  incremental return, and owner-cash contribution.
+- **Limits:** Future returns are unobserved; unbounded funding or incremental returns
+  leave growth value unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1992 annual letter** — *supports*: growth creates value only
+    above cost of incremental capital.
+  - **Berkshire Hathaway 2000 annual letter** — *supports*: growth affects value only
+    through cash flow economics.
+- **Corroboration:** EWB §II.D; EWB §III.C; CM50-2015; LOW ch.10 (cable-TV rejection
+  case).
+
+<a id="v05"></a>
+
+### V05 — Expose Assumptions, Sensitivities, and Missing Evidence
+
+- **Decision question:** Which assumptions drive the range, how fragile are they, and
+  which missing facts block a conclusion?
+- **Guidance:** Make operating, reinvestment, discounting, and terminal assumptions
+  explicit; test plausible combinations and identify invalidating evidence.
+- **Use when:** Every material valuation, especially when forecast or model dependence
+  is high.
+- **Analytical actions:** Rank drivers by impact and uncertainty; run supported scenario
+  combinations; map each missing input to the blocked conclusion.
+- **Output:** A sensitivity and missing-evidence register tied to the value range and
+  invalidation conditions.
+- **Limits:** Sensitivity cannot validate bad assumptions or assign unsupported
+  probabilities; unsupported bounds require no value conclusion.
+- **Source basis:**
+  - **Berkshire Hathaway 1999 annual letter** — *implements*: estimate intrinsic value
+    as a range.
+  - **Berkshire Hathaway 2020 annual letter** — *illustrates*: Precision Castparts
+    overpayment from earnings overestimate.
+- **Corroboration:** EWB §II.D; BH2002; BH2014.
+
+<a id="v06"></a>
+
+### V06 — Require a Margin of Safety Proportionate to Uncertainty
+
+- **Decision question:** Is the price-value gap adequate for uncertainty, resilience,
+  financing, and downside shown by the evidence?
+- **Guidance:** Compare price with the conservative end of a supported range and require
+  more room for greater uncertainty; a discount cannot cure fragility.
+- **Use when:** A defensible value range and downside analysis exist and price is in
+  scope.
+- **Analytical actions:** Quantify scenario gaps; tie required room to named
+  uncertainty; test whether the discount survives adverse assumptions.
+- **Output:** A price-value table with scenario gaps, uncertainty drivers, and an
+  adequate, inadequate, or unresolved analytical finding.
+- **Limits:** No universal discount applies; missing price or value leaves the result
+  unresolved, and the finding is not trade authority.
+- **Source basis:**
+  - **Warren Buffett’s 1984 essay “The Superinvestors of Graham-and-Doddsville”** —
+    *defines*: margin of safety.
+  - **Berkshire Hathaway 2020 annual letter** — *illustrates*: Precision Castparts
+    overpayment from earnings overestimate.
+- **Corroboration:** EWB §II.D; BH2025; LOW ch.5 (franchise-value margin evolution); LOW
+  ch.8 (Washington Post discount case).
+
+<!-- This document follows common-doc-guidelines.md.
+See github.com/jlevy/practical-prose and review guidelines before editing.
+-->

package/selected-skills/investment-skills/skills/buffett-investment-framework/references/06-capital-allocation.md

@@ -0,0 +1,238 @@
+# Capital Allocation
+
+Use these cards as evidence-bounded analytical prompts derived from Buffett and
+Berkshire writings. Apply them to supplied evidence, preserve each card’s limits, and
+return unresolved findings when prerequisites are missing.
+
+Read this file when reviewing retention, distributions, repurchases, issuance,
+acquisitions, or reserves.
+Load only the cards selected by the router; do not load the whole module by default.
+Abbreviated corroboration citations resolve in the [source key](00-source-key.md).
+
+## Card Index
+
+| Card | Decision question |
+| --- | --- |
+| [C01](#c01) | How does the decision change each continuing owner’s long-term economics after financing, dilution, tax, risk, and alternatives? |
+| [C02](#c02) | What capital and true liquidity must remain unavailable so operations and obligations survive correlated adversity? |
+| [C03](#c03) | Which route offers the strongest supported owner outcome after tax, risk, scale, timing, financing, and friction? |
+| [C04](#c04) | Is retained capital likely to increase per-share owner value more than distribution or another feasible route? |
+| [C05](#c05) | After protected reserves and productive uses, is capital genuinely surplus? |
+| [C06](#c06) | Will repurchase materially improve continuing-owner value without weakening resilience or unfairly transferring value? |
+| [C07](#c07) | Does issuing equity give owners at least as much durable value and resilience as the interest surrendered? |
+| [C08](#c08) | Does the complete exchange improve continuing-owner value under defensible stand-alone and downside cases? |
+| [C09](#c09) | Has commitment manufactured confidence through selective information, incentives, or optimistic assumptions? |
+
+## Complete Cards
+
+<a id="c01"></a>
+
+### C01 — Optimize Long-Term Per-Share Owner Value
+
+- **Decision question:** How does the decision change each continuing owner’s long-term
+  economics after financing, dilution, tax, risk, and alternatives?
+- **Guidance:** Use per-share intrinsic-value effects as the objective; do not
+  substitute aggregate growth, EPS, book value, or corporate size.
+- **Use when:** Material deployment, financing, payout, acquisition, issuance, or
+  discretionary spending.
+- **Analytical actions:** Bridge enterprise to per-share effects; trace dilution,
+  claims, taxes, downside, and opportunity cost; separate accounting optics from
+  economics.
+- **Output:** A per-share value bridge showing value contributed and surrendered,
+  affected owners, assumptions, and unresolved effects.
+- **Limits:** Value is estimated and stakeholder or legal constraints may dominate; an
+  unsupported bridge stays unresolved and authorizes nothing.
+- **Source basis:**
+  - **Berkshire Hathaway 1994 annual letter** — *implements*: allocate capital by per
+    share intrinsic value not near term EPS.
+  - **Berkshire Hathaway 1982 annual letter** — *qualifies*: EPS dilution is not value
+    dilution.
+- **Corroboration:** EWB §I.A; OM1996; BH2022; LOW ch.10 (Washington Post per-share
+  case).
+
+<a id="c02"></a>
+
+### C02 — Set the Allocation Reserve Before Optional Return
+
+- **Decision question:** What capital and true liquidity must remain unavailable so
+  operations and obligations survive correlated adversity?
+- **Guidance:** Establish operating, claims, covenant, regulatory, and calamity reserves
+  before optional uses; accept foregone return when refinancing dependence would make
+  survival fragile.
+- **Use when:** Optional deployment competes with working capital, debt, collateral,
+  claims, regulated capital, or credible stress needs.
+- **Analytical actions:** Inventory obligations, timing, restrictions, and liquid
+  assets; stress simultaneous demands; state protected reserve and supported surplus.
+- **Output:** A reserve schedule with required liquidity, stress uses, funding,
+  restrictions, and unresolved surplus.
+- **Limits:** No universal ratio applies and nominal liquidity may disappear;
+  unverifiable access makes the amount unavailable, not surplus.
+- **Source basis:**
+  - **Berkshire Hathaway 2018 annual letter** — *implements*: preserve calamity
+    liquidity before acquisitions.
+  - **Berkshire Hathaway 2003 annual letter** — *qualifies*: stable ring fenced utility
+    cash flows can support subsidiary debt.
+- **Corroboration:** OM1996; BH2014; FL2025.
+
+<a id="c03"></a>
+
+### C03 — Compare the Full Capital-Allocation Menu and Available Channels
+
+- **Decision question:** Which route offers the strongest supported owner outcome after
+  tax, risk, scale, timing, financing, and friction?
+- **Guidance:** Compare internal investment, acquisitions, securities, debt change,
+  repurchase, payout, and inaction on one explicit owner-value basis.
+- **Use when:** More than one discretionary route is available or management omits
+  alternatives.
+- **Analytical actions:** Enumerate feasible routes; normalize owner cash, downside,
+  duration, tax, scale, control, and reversibility; rank only comparable evidence.
+- **Output:** A capital-route matrix with assumptions, constraints, ranges, downside,
+  scale, and unresolved alternatives.
+- **Limits:** No universal hurdle or probability method applies; survival precedes
+  ranking and the matrix authorizes no deployment.
+- **Source basis:**
+  - **Berkshire Hathaway 2021 annual letter** — *implements*: compare capital allocation
+    routes by return and scale.
+  - **Berkshire Hathaway 1987 annual letter** — *supports*: select by after tax
+    mathematical expectation.
+- **Corroboration:** EWB §IV.D; OM1996; BH2014.
+
+<a id="c04"></a>
+
+### C04 — Retain and Reinvest Earnings Only for Productive Deployment
+
+- **Decision question:** Is retained capital likely to increase per-share owner value
+  more than distribution or another feasible route?
+- **Guidance:** Treat retained earnings as owner capital that must earn its keep through
+  prospective incremental earning power and later accountability.
+- **Use when:** Material retention for organic growth, maintenance presented as growth,
+  or central redeployment.
+- **Analytical actions:** Separate maintenance from growth; estimate incremental returns
+  and capacity; compare later outcomes with the original case and alternatives.
+- **Output:** A retention ledger linking amounts to uses, expected economics, realized
+  outcomes, and unresolved attribution.
+- **Limits:** Returns can be delayed and hard to attribute; if maintenance and growth
+  cannot be separated, the test is unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1978 annual letter** — *implements*: condition retention on
+    profitable reinvestment.
+  - **Berkshire Hathaway 2016 annual letter** — *supports*: retained earnings must
+    increase earning power.
+- **Corroboration:** EWB §III.C; OM1996; BH2014; LOW ch.15 (subsidiary retention test).
+
+<a id="c05"></a>
+
+### C05 — Return Surplus Capital When No Better Use Exists
+
+- **Decision question:** After protected reserves and productive uses, is capital
+  genuinely surplus?
+- **Guidance:** Treat payout as the consequence of no better supported deployment, not a
+  fixed preference; distinguish distribution from central redeployment.
+- **Use when:** Mature or capital-light operations generate cash beyond maintenance,
+  growth, obligations, and resilience needs.
+- **Analytical actions:** Reconcile distributable cash after C02; compare C03
+  alternatives; show tax, control, and owner-treatment effects of payout channels.
+- **Output:** A surplus-capital ledger with amounts blocked, deployable, distributable,
+  or unresolved.
+- **Limits:** Legal, tax, contractual, and balance-sheet limits may block payout; an
+  incomplete reserve or opportunity set means no surplus finding.
+- **Source basis:**
+  - **Berkshire Hathaway 1984 annual letter** — *implements*: Berkshire dividend policy
+    uses value creation threshold.
+  - **Berkshire Hathaway 2007 annual letter** — *qualifies*: redeploy cash from high
+    return low reinvestment businesses.
+- **Corroboration:** EWB §III.C; BH2014; LOW ch.15 (distribution threshold case).
+
+<a id="c06"></a>
+
+### C06 — Repurchase Only Below Value with Surplus Capacity and Material Effect
+
+- **Decision question:** Will repurchase materially improve continuing-owner value
+  without weakening resilience or unfairly transferring value?
+- **Guidance:** Require conservative undervaluation, protected liquidity, fair
+  disclosure, superior alternatives, and meaningful per-share effect.
+- **Use when:** An issuer proposes, conducts, or defends a material repurchase.
+- **Analytical actions:** Compare price with value; recheck capacity and alternatives;
+  quantify shares retired, financing, per-share effect, and transfers.
+- **Output:** A repurchase worksheet with value, capacity, materiality, fairness,
+  alternatives, and unresolved assumptions.
+- **Limits:** Value is uncertain and above-value purchases can transfer wealth; the
+  worksheet authorizes no repurchase or trade.
+- **Source basis:**
+  - **Berkshire Hathaway 1980 annual letter** — *implements*: repurchase below intrinsic
+    value.
+  - **Berkshire Hathaway 1999 annual letter** — *qualifies*: above value repurchases
+    transfer wealth from continuing owners.
+- **Corroboration:** EWB §IV.B; BH2014; BH2022; LOW ch.10 (Washington Post repurchases).
+
+<a id="c07"></a>
+
+### C07 — Issue Shares Only Value for Value
+
+- **Decision question:** Does issuing equity give owners at least as much durable value
+  and resilience as the interest surrendered?
+- **Guidance:** Analyze issuance as a partial sale of owner assets and compare value
+  surrendered with assets, claims extinguished, or resilience received.
+- **Use when:** Stock-financed acquisitions, compensation issuance, conversion,
+  recapitalization, or balance-sheet repair.
+- **Analytical actions:** Estimate value and ownership surrendered; value consideration
+  and resilience received; reconcile to continuing-owner value rather than optics.
+- **Output:** An issuance exchange bridge with ownership transfer, proceeds, financing
+  effects, and per-share result.
+- **Limits:** Issuance can rationally improve resilience and both sides are uncertain;
+  missing estimates leave the exchange unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1982 annual letter** — *implements*: share issuance value for
+    value rule.
+  - **Berkshire Hathaway 1992 annual letter** — *illustrates*: stock financed bank deal
+    destroyed value.
+- **Corroboration:** EWB §IV.A; OM1996; LOW ch.12 (stock-deal dilution cases).
+
+<a id="c08"></a>
+
+### C08 — Evaluate Acquisitions by Quality, Price, Financing, Alternatives, and Postmortems
+
+- **Decision question:** Does the complete exchange improve continuing-owner value under
+  defensible stand-alone and downside cases?
+- **Guidance:** Evaluate target economics, management, price, financing, dilution,
+  alternatives, and realized outcomes together, not EPS or size.
+- **Use when:** A proposed or completed acquisition, merger, or major asset purchase.
+- **Analytical actions:** Underwrite stand-alone quality and owner cash; build a value
+  exchange and financing bridge; preserve assumptions for post-closing comparison.
+- **Output:** An acquisition sheet with stand-alone value, consideration, financing,
+  alternatives, downside, per-share effect, and postmortem fields.
+- **Limits:** Good businesses can be overpaid for and synergies may matter; unbounded
+  economics or consideration leaves the assessment unresolved.
+- **Source basis:**
+  - **Berkshire Hathaway 1985 annual letter** — *implements*: Berkshire whole business
+    acquisition criteria.
+  - **Berkshire Hathaway 2017 annual letter** — *implements*: evaluate acquisitions on
+    all equity basis.
+- **Corroboration:** EWB §IV.D; OM1996; BH2014.
+
+<a id="c09"></a>
+
+### C09 — Counter Acquisition-Process Bias
+
+- **Decision question:** Has commitment manufactured confidence through selective
+  information, incentives, or optimistic assumptions?
+- **Guidance:** Require an informed opposing case challenging seller information,
+  forecasts, turnarounds, synergies, adviser incentives, and deal hunger.
+- **Use when:** A material transaction with committed leadership, seller-controlled
+  information, or synergy and turnaround dependence.
+- **Analytical actions:** Build the stand-alone downside before synergies; map
+  incentives and information; run a premortem and preserve assumptions.
+- **Output:** An independent deal-challenge memo listing contested assumptions,
+  adverse-selection risks, opposing evidence, and unresolved conditions.
+- **Limits:** Seller advantage does not imply fraud, deals do not universally fail, and
+  broad acquisition priors cannot determine a specific case.
+- **Source basis:**
+  - **Berkshire Hathaway 1995 annual letter** — *supports*: most acquisitions damage
+    buyers and seller projections mislead.
+  - **Berkshire Hathaway 2017 annual letter** — *supports*: deal hunger recruits biased
+    forecasts and synergies.
+- **Corroboration:** EWB §IV.A; EWB §IV.D; BH2014; LOW ch.12 (acquisition ego cases).
+
+<!-- This document follows common-doc-guidelines.md.
+See github.com/jlevy/practical-prose and review guidelines before editing.
+-->

package/selected-skills/investment-skills/skills/buffett-investment-framework/references/07-risk-monitoring.md

@@ -0,0 +1,189 @@
+# Risk, Resilience, and Monitoring
+
+Use these cards as evidence-bounded analytical prompts derived from Buffett and
+Berkshire writings. Apply them to supplied evidence, preserve each card’s limits, and
+return unresolved findings when prerequisites are missing.
+
+Read this file when tracing permanent harm, leverage, contingent claims, inflation, exit
+conditions, or invalidation.
+Load only the cards selected by the router; do not load the whole module by default.
+Abbreviated corroboration citations resolve in the [source key](00-source-key.md).
+
+## Card Index
+
+| Card | Decision question |
+| --- | --- |
+| [R01](#r01) | What could permanently reduce owner purchasing power, future consumption, or the ability to wait? |
+| [R02](#r02) | Can obligations and operating capacity survive several plausible stresses arriving together? |
+| [R03](#r03) | Could nonlinear claims, model errors, collateral demands, or weakest-link counterparties exceed liabilities or available liquidity? |
+| [R04](#r04) | Does nominal growth become real owner value after pricing lags, replacement capital, working capital, tax, and financing? |
+| [R05](#r05) | How much underlying return is lost to fees, taxes, turnover, advice, and unnecessary activity? |
+| [R06](#r06) | Have economics, thesis evidence, integrity, or opportunity cost changed enough to satisfy a predeclared exit condition? |
+| [R07](#r07) | Which observations would strengthen, weaken, revise, or retire each material assumption? |
+
+## Complete Cards
+
+<a id="r01"></a>
+
+### R01 — Define Risk by Permanent Owner Harm or Forced Action
+
+- **Decision question:** What could permanently reduce owner purchasing power, future
+  consumption, or the ability to wait?
+- **Guidance:** Define risk by permanent owner outcomes and forced-action paths;
+  volatility matters when it interacts with liquidity, solvency, mandate, or horizon.
+- **Use when:** Risk analysis dominated by beta, volatility, or generic labels.
+- **Analytical actions:** Define owner, horizon, and harm; trace permanent-loss and
+  forced-action mechanisms; separate quotation volatility from impairment.
+- **Output:** An owner-risk taxonomy with harm, mechanism, horizon, trigger, and
+  unresolved probability.
+- **Limits:** Volatility matters for constraints and short horizons; this definition
+  proves neither concentration nor equity safety.
+- **Source basis:**
+  - **Berkshire Hathaway 2011 annual letter** — *defines*: investment risk as purchasing
+    power loss probability.
+  - **Berkshire Hathaway 1993 annual letter** — *implements*: assess real risk through
+    purchasing power and business factors.
+- **Corroboration:** EWB §II.C; OM1996; BH2022.
+
+<a id="r02"></a>
+
+### R02 — Stress Leverage and Liquidity Under Correlated Adversity
+
+- **Decision question:** Can obligations and operating capacity survive several
+  plausible stresses arriving together?
+- **Guidance:** Stress debt, liquidity, refinancing, collateral, and operating needs
+  jointly; do not rely on averages or uninterrupted credit access.
+- **Use when:** Material leverage, maturity concentration, cyclical cash flow, liquidity
+  dependence, or forced-action exposure.
+- **Analytical actions:** Establish unrestricted liquidity and reserve; combine
+  operating, market, collateral, and refinancing stresses; identify first failure.
+- **Output:** A correlated-stress table with sources, uses, reserve breach, refinancing
+  dependence, and unresolved inputs.
+- **Limits:** No universal threshold applies and ring-fenced cash flows may support
+  different debt only when legal separation is verified.
+- **Source basis:**
+  - **Berkshire Hathaway 2018 annual letter** — *implements*: preserve calamity
+    liquidity before acquisitions.
+  - **Berkshire Hathaway 2010 annual letter** — *supports*: leverage can destroy
+    survival when refinancing disappears.
+- **Corroboration:** BPL1967; OM1996; BH2014; BH2023.
+
+<a id="r03"></a>
+
+### R03 — Stress Contingent Obligations, Derivatives, Models, and Counterparties
+
+- **Decision question:** Could nonlinear claims, model errors, collateral demands, or
+  weakest-link counterparties exceed liabilities or available liquidity?
+- **Guidance:** Reconstruct the obligation and counterparty chain, challenge model
+  population and incentives, and stress amount, timing, correlation, collateral,
+  refinancing, and settlement together.
+- **Use when:** Derivatives, pensions, reserves, guarantees, structured claims, or
+  model-dependent liabilities.
+- **Analytical actions:** Build the obligation and collateral chain; challenge
+  structural breaks; stress timing, correlation, liquidity, and counterparties.
+- **Output:** A contingent-obligation ledger and tail map with ranges, dependencies, and
+  unresolved exposures.
+- **Limits:** Product expertise is often necessary; do not estimate absent exposure
+  merely to complete the analysis.
+- **Source basis:**
+  - **Berkshire Hathaway 2003 annual letter** — *supports*: derivatives company
+    disclosures cannot reveal the full risk.
+  - **Berkshire Hathaway 2008 annual letter** — *implements*: test history based models
+    for changes in the underlying universe.
+- **Corroboration:** EWB §II.G; BH2002.
+
+<a id="r04"></a>
+
+### R04 — Test Inflation Exposure Through Pricing Power and Capital Needs
+
+- **Decision question:** Does nominal growth become real owner value after pricing lags,
+  replacement capital, working capital, tax, and financing?
+- **Guidance:** Trace inflation through revenue, costs, price, volume, required capital,
+  financing, and owner cash rather than labeling a hedge.
+- **Use when:** Long-duration forecasts, inflation-sensitive inputs, fixed-price claims,
+  capital intensity, or an asserted inflation hedge.
+- **Analytical actions:** Map price-cost-volume timing; estimate replacement and working
+  capital; compare nominal with real owner cash.
+- **Output:** An inflation-transmission map and real-owner-cash sensitivity with
+  unresolved variables.
+- **Limits:** Pricing can reduce volume and productive assets can require heavy capital;
+  asset labels do not resolve the result.
+- **Source basis:**
+  - **Berkshire Hathaway 2011 annual letter** — *defines*: investment risk as purchasing
+    power loss probability.
+  - **Berkshire Hathaway 2011 annual letter** — *qualifies*: buy currency securities
+    only for unusual mispricing or rate opportunities.
+- **Corroboration:** EWB §V.C; BH1981.
+
+<a id="r05"></a>
+
+### R05 — Preserve Compounding by Minimizing Avoidable Friction
+
+- **Decision question:** How much underlying return is lost to fees, taxes, turnover,
+  advice, and unnecessary activity?
+- **Guidance:** Measure avoidable friction before crediting active intervention while
+  keeping survival and reinvestment quality as prior conditions.
+- **Use when:** Strategy comparison, manager evaluation, turnover, taxes, or claims that
+  gross performance equals owner return.
+- **Analytical actions:** Reconcile gross to net; compare with a lower-friction
+  alternative; compound measured drag over the horizon.
+- **Output:** A friction bridge showing costs and cumulative owner impact.
+- **Limits:** Low cost does not make a weak strategy sound and access, mandate, tax, and
+  benchmarks differ.
+- **Source basis:**
+  - **Berkshire Hathaway 1983 annual letter** — *supports*: market turnover imposes
+    owner friction costs.
+  - **Berkshire Hathaway 2013 annual letter** — *supports*: frequent trading and advice
+    costs reduce aggregate investor returns.
+- **Corroboration:** EWB §III.A; EWB §III.D; BH2014.
+
+<a id="r06"></a>
+
+### R06 — Test Whether an Exit Condition Has Been Met
+
+- **Decision question:** Have economics, thesis evidence, integrity, or opportunity cost
+  changed enough to satisfy a predeclared exit condition?
+- **Guidance:** Compare current evidence with the original thesis and conditions;
+  distinguish deterioration and superior alternatives from price reaction.
+- **Use when:** Hold, sell, or thesis-update review after material evidence or a
+  proposed exit.
+- **Analytical actions:** Compare original and current assumptions; test economics,
+  integrity, value, tax, and alternatives; classify each condition.
+- **Output:** An exit-condition assessment with evidence and unresolved questions, but
+  no trade instruction.
+- **Limits:** Long holding and sale for higher-priority uses are in tension; no
+  condition automatically authorizes a trade.
+- **Source basis:**
+  - **Warren Buffett’s 2015 50th-anniversary essay** — *qualifies*: consider inaction
+    before selling a prosperous business.
+  - **Berkshire Hathaway 2009 annual letter** — *illustrates*: security sales funded
+    higher priority cash deployment.
+- **Corroboration:** EWB §IV.E; BPL1967; BH2014 (Tesco exit-delay case).
+
+<a id="r07"></a>
+
+### R07 — Monitor Assumptions, Change Indicators, and Invalidation Conditions
+
+- **Decision question:** Which observations would strengthen, weaken, revise, or retire
+  each material assumption?
+- **Guidance:** Maintain a compact assumption register with evidence-linked indicators
+  and invalidation conditions; update from decision-relevant evidence rather than
+  undirected news or quotes.
+- **Use when:** Ongoing monitoring, periodic thesis review, or material new operating,
+  governance, financing, or industry evidence.
+- **Analytical actions:** Register assumptions, indicators, and cadence; classify new
+  evidence; mark assumptions strengthened, weakened, revised, retired, or unresolved.
+- **Output:** A thesis-monitoring register with dated evidence, status changes, and
+  blocked conclusions.
+- **Limits:** Indicators can be noisy or lagging and no update automatically produces a
+  buy, sell, or hold action.
+- **Source basis:**
+  - **Berkshire Hathaway 2013 annual letter** — *implements*: ignore daily prices and
+    monitor productive output.
+  - **Berkshire Hathaway 1996 annual letter** — *qualifies*: do not sell fine businesses
+    on scary news alone.
+- **Corroboration:** EWB §II.E; BPL1967; BH2014.
+
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