@v587d/capital-generation 2.7.11 → 2.7.12

package/selected-skills/peter-lynch-skill/skills/peter-lynch-skill/references/deep/methodology-4.md

@@ -0,0 +1,113 @@
+# references/deep/methodology.md · Part 4 of 4
+
+Part 4/4 of `references/deep/methodology.md` — split so each part arrives complete in one `read`; see `references/deep/methodology-1.md` for the whole guide.
+
+## 9) Triggered Special Modules
+
+**Output format: maximum 250 words total**
+
+Only include the modules that are triggered.  
+If none are triggered, write: **“No additional special-case module triggered.”**
+
+### 9.1 High-Cyclicality Module
+
+**Trigger:** Cyclicality = High
+
+Check:
+- past peak/trough EPS
+- current cycle position
+- inventory behavior
+- capacity additions
+- whether new competitors are entering
+
+Remember:
+- **high P/E at trough can be opportunity**
+- **low P/E at peak can be danger**
+
+### 9.2 Turnaround Module
+
+**Trigger:** Turnaround status = Active or Recovering
+
+Identify the stage:
+1. Crisis
+2. Stabilization
+3. Recovery
+4. Full re-rating
+
+Also check:
+- balance sheet survival
+- whether liquidity is enough for the next 12–24 months
+- dilution risk
+
+**Dilution warning:**
+- Has share count grown **>10%** in the last 2 years?
+- Are convertibles or warrants outstanding?
+- Evaluate recovery on a **per diluted share** basis, not just total net income
+
+### 9.3 Asset Angle Module
+
+**Trigger:** Asset angle = Possible or Strong
+
+Check:
+- nature of hidden assets
+- evidence that value exceeds market cap
+- catalyst for value realization
+- downside floor estimate
+
+Always ask: **How much can I lose?**
+
+### 9.4 Stalwart Resilience Module
+
+**Trigger:** Growth profile = Stalwart-like AND Cyclicality is not High
+
+Check how the company performed during the last 2 major recessions or market drops:
+- Did EPS decline, and by how much?
+- Was the dividend maintained or cut?
+- Did the stock recover within 12–24 months?
+
+Prefer businesses with earnings resilience or quick recovery.
+
+### 9.5 Fast-Growth Quality Module
+
+**Trigger:** Growth profile = Fast
+
+Check:
+
+**Growth rate band**
+- **20–25%** → preferred
+- **25–50%** → acceptable but scrutinize harder
+- **>50%** → extreme skepticism
+
+If growth exceeds **25%** and the industry is hot or trendy, lower conviction to **Low** regardless of other metrics.
+
+Also assess:
+- hot industry / crowded space risk
+- expansion momentum: accelerating or decelerating?
+- replication test: proven in more than one market?
+- saturation check: how penetrated is the addressable market?
+- valuation guardrail: PEG should be near 1; **>1.5** means limited margin of safety
+
+### 9.6 Mature Income Module
+
+**Trigger:** Growth profile = Slow AND Business maturity = Mature
+
+Check:
+- dividend coverage and stability
+- buybacks versus dilution
+- whether management is returning excess cash rationally
+- whether the company is a stable cash cow or a value trap
+
+## 10) Final Score
+
+**Output format: maximum 200 words**
+
+Based on all data analyzed, assign an **attractiveness score**.
+
+**Attractiveness score: X / 10**  
+(1 = avoid entirely; 10 = very compelling opportunity)
+
+The score rates how consistent and well-evidenced the case reads from the
+sources in the brief — it is a structural read, not a forecast of price or
+returns, and it is not a buy or sell instruction.
+
+Justify the score in **3–5 sentences**.

package/selected-skills/peter-lynch-skill/skills/peter-lynch-skill/references/deep/methodology.md

@@ -62,526 +62,13 @@ If classified as **Hard**, explicitly state what must be understood before inves
 - What are **2–3 conditions** that would kill the thesis? Use a numeric list.
 - How will you track whether the story is unfolding?
 
-## 2) Diagnostic Profile (No Single Category)
+This guide is split into 4 files so each one arrives complete in a single `read`.
+Open the part you need with `read`, resolved against this skill's base directory:
 
-**Output format: maximum 250 words**
+- `methodology-1.md` — ?; ?
+- `methodology-2.md` — ?; ?; ?
+- `methodology-3.md` — ?; ?
+- `methodology-4.md` — ?; ?
 
-Report the following traits independently.  
-For each trait, give:
-- **State**
-- **Conviction**: Low / Medium / High
-- **Evidence**: 1 short sentence
-
-Use this compact bullet format:
-
-- Cyclicality: [state] | Conviction: [Low/Medium/High] | Evidence: ...
-- Turnaround status: [state] | Conviction: [Low/Medium/High] | Evidence: ...
-- Growth profile: [state] | Conviction: [Low/Medium/High] | Evidence: ...
-- Business maturity: [state] | Conviction: [Low/Medium/High] | Evidence: ...
-- Asset angle: [state] | Conviction: [Low/Medium/High] | Evidence: ...
-- Dominant analytical lenses: [list up to 2 traits that should dominate the rest of the analysis]
-
-### 2.1 Cyclicality
-
-States:
-- **High**
-- **Moderate**
-- **Low**
-
-Rules:
-- **High** if:
-  - at least **2 full EPS cycles** in the last 10 years (**peak → trough → peak**),
-  - peaks had positive EPS,
-  - swings were **≥30%**
-- **Moderate** if:
-  - 1 clear cycle, or
-  - repeated earnings swings of roughly **15–30%**, or
-  - the industry is clearly cyclical but the financial history is too short for a High rating
-- **Low** otherwise
-
-### 2.2 Turnaround Status
-
-States:
-- **None**
-- **Active**
-- **Recovering**
-
-Rules:
-- **Active** if any of the following are true:
-  - EPS declined **2+ consecutive years**
-  - revenue contracted **>5%** and margins compressed
-  - EPS is **≥30% below prior peak**
-  - and the deterioration is **not mainly normal cyclicality**
-- **Recovering** if the business recently met Active criteria but revenue, margins, or EPS have now stabilized or started improving
-- **None** otherwise
-
-### 2.3 Growth Profile
-
-States:
-- **Fast**
-- **Stalwart-like**
-- **Slow**
-- **Moderate/Other**
-- **Declining**
-
-Rules:
-- **Fast** if:
-  - **2Y EPS CAGR ≥20%**
-  - revenue growth confirms
-  - growth is **not mainly a cyclical rebound**
-  - growth is **not merely recovery from a distressed base**
-- **Stalwart-like** if:
-  - **2Y EPS CAGR = 8–12%**
-  - margins are stable
-  - no 2-year EPS decline
-  - no revenue contraction >5%
-  - and cyclicality is **not High**
-- **Slow** if:
-  - **2Y EPS CAGR = 2–5%**
-  - and the business appears **large/mature**
-  - and there is no obvious distress
-- **Moderate/Other** if results fall between bands or are mixed
-- **Declining** if EPS CAGR is below 2% or negative
-
-**Guardrail:** If EPS growth is mostly from buybacks, cost cutting, or recovery off a depressed base, say growth quality is weaker.
-
-### 2.4 Business Maturity
-
-States:
-- **Early**
-- **Scaling**
-- **Mature**
-
-Rules:
-- **Early** — still proving the model; concentrated geography/product; evidence base limited
-- **Scaling** — model proven and expanding into more markets/products; meaningful whitespace remains
-- **Mature** — broad penetration, lower whitespace, and capital allocation/dividends/buybacks matter more
-
-### 2.5 Asset Angle
-
-States:
-- **None**
-- **Possible**
-- **Strong**
-
-Rules:
-- **Strong** if verifiable after-tax asset value exceeds market cap by **≥30%**
-- **Possible** if hidden assets appear meaningful but valuation or catalyst is incomplete
-- **None** otherwise
-
-### 2.6 Dominant Analytical Lenses
-
-Choose **up to 2** traits that should dominate the rest of the analysis.  
-Examples:
-- High cyclicality
-- Active turnaround
-- Recovering turnaround
-- Fast growth
-- Strong asset angle
-- Mature slow-growth economics
-
-## 3) Long-Term Track Record
-
-**Output format: maximum 220 words**
-
-### 3.1 Revenue & EPS Trend
-
-Summarize:
-- revenue direction and rough CAGR band
-- earnings per share (EPS) consistency and volatility
-- major drops or spikes
-
-### 3.2 Earnings Predictability
-
-Rate one:
-- **Rock steady** — net income grows or holds in 4–5 of 5 years; no single year drops more than ~20%; operating cash flow confirms
-- **Moderate fluctuation** — net income swings roughly ±20–50%, or net income is noisy but operating cash flow is steadier
-- **Highly volatile** — net income swings more than 50% in multiple years, or both net income and operating cash flow are erratic
-
-If volatility is mainly due to cyclicality, say so explicitly rather than treating it as a generic red flag.
-
-### 3.3 Profitability
-
-Primary metric:
-
-- **Pretax profit margin** (rising, stable, falling?)
-
-Secondary:
-
-- Return on Equity (ROE) (direction and stability)
-
-Avoid reliance on ROIC unless clearly labeled as supplemental.
-
-### 3.4 Share Dilution
-
-State whether share count is:
-- materially shrinking
-- stable
-- heavily diluting
-
-
-## 4) Balance Sheet & Financial Safety
-
-**Output format: maximum 220 words**
-
-### 4.1 Leverage
-
-Discuss:
-- debt-to-equity trend
-- net debt trend
-- interest coverage = EBIT ÷ interest expense
-
-Standard benchmark:
-- below **3x** interest coverage = monitor closely
-- below **1.5x** = red flag
-
-
-Use **interest‑bearing debt only**: short‑term borrowings + long‑term debt + current portion of long‑term debt. 
-Do NOT use total liabilities. It will distort brokers, banks, insurers, and high working‑capital businesses.
-
-**warning thresholds:**
-- If **Growth profile = Fast** → **D/E > 33%** = red flag
-- If **Turnaround status = Active or Recovering** OR **Cyclicality = High** → **D/E > 50%** = red flag
-- All others → **D/E > 80%** = red flag
-
-### 4.2 Liquidity
-
-- Current ratio = current assets ÷ current liabilities.
-  Below 1.0 means the company cannot cover near-term obligations
-  from current assets alone — flag it.
-
-- Receivables check: if receivables grow significantly faster than
-  revenue, it may signal customers are slow to pay or that sales are
-  being pulled forward artificially.
-- Inventory vs revenue growth: if inventory grows faster than revenue → warning. For cyclical businesses this is a high-priority red flag. For turnarounds and fast growers, note that additional context is needed before drawing conclusions.
-
-### 4.3 Net Cash Cushion
-
-Net cash = cash and short-term investments − total interest-bearing debt.
-Total interest-bearing debt = long-term debt + current portion of
-long-term debt + short-term borrowings.
-
-Net cash per share = net cash ÷ diluted shares outstanding.
-
-- If **positive**: state the net cash per share and note that it lowers
-  the effective purchase price (stock price − net cash per share = true
-  cost of the business) and reduces bankruptcy risk.
-- If **negative**: flag the shortfall, state the amount, and note its
-  size relative to annual operating cash flow.
-
-### 4.4 Off-Balance-Sheet Risks
-
-Check:
-- **Pension liabilities**: note whether funded or underfunded.
-- **Operating leases**: note total commitment if material relative to
-  operating income.
-- **Goodwill**: if goodwill exceeds 25% of total assets, investigate
-  acquisition history — check whether past acquisitions generated
-  earnings growth or resulted in write-downs, and whether new
-  acquisitions are still being made.
-
-### 4.5 Turnaround Survival
-
-**Only if Turnaround status = Active or Recovering**
-
-Can cash + FCF likely cover **12–24 months**?  
-Prefer turnarounds with low or no debt.
-
----
-
-## 5) Cash Flow & Earnings Quality
-
-**Output format: maximum 220 words**
-
-### 5.1 Do Reported Profits Match Cash Generation?
-
-- Compare net income to operating cash flow over at least 3 years.
-  A persistent gap where operating cash flow is less than half of net
-  income needs a specific explanation (depreciation, stock-based
-  compensation, working capital changes). Unexplained gaps are a warning.
-- Is free cash flow positive? If negative, identify whether it is driven
-  by high capital expenditure (investment phase — requires context) or
-  by weak operating cash flow (structural concern — red flag).
-
-Red flags:
-- Rising net income with flat or declining operating cash flow over
-  multiple years
-- Repeated "one-time" charges or adjustments that recur every year
-- Free cash flow persistently negative while net income is reported positive
-
-### 5.2 Capex Logic
-
-- High capex acceptable if tied to real expansion
-- Low capex despite bold growth story → suspicious
-
-### 5.3 Dividend Policy
-
-- Dividend policy (stable, growing, cut?)
-
-Interpretation by profile:
-- **Slow + Mature** → dividends and payout safety matter
-- **Fast or Scaling/Early** → reinvestment is usually preferable
-- **Stalwart-like / mature non-cyclical** → balanced mix is acceptable
-
-
-## 6) Growth Drivers & “Room to Grow”
-
-**Output format: maximum 220 words**
-
-### 6.1 Specific Growth Drivers
-
-List 1–4 main growth drivers.
-
-For each:
-
-- Evidence in numbers
-- Revenue contribution % (if available)
-- Scalability
-
-### 6.2 Duplication Model Test
-
-Is growth driven by:
-- replication of a proven model (preferred), or
-- constant reinvention (riskier)?
-
-### 6.3 Expansion Possibility
-
-Discuss:
-- whitespace remaining
-- geographic penetration
-- store/location/product saturation
-- whether the company is still early in market penetration or already broadly present
-
-If most markets already penetrated → growth may slow.
-
-### 6.4 Unit Economics
-
-Discuss:
-
-- Gross margin trend
-- Pretax margin by segment
-- Basic unit profitability logic
-
-Judge: Strong / Acceptable / Weak
-
-## 7) Competitive Position
-
-**Output format: maximum 250 words**
-
-Avoid generic "moat" language. State specifically whether the company is a cost leader, niche specialist, brand-driven, or undifferentiated competitor, and what evidence supports that label. If competitor margin data is available, compare directly; if not, note the absence.
-
-### 7.1 Industry Structure
-
-- Fragmented or consolidated? Name the 2–3 largest competitors.
-- Are margins in the industry rising, stable, or under pressure?
-- Structural tailwinds or headwinds?
-
-Use competitors and industry context already disclosed in the annual report,
-latest results, or existing research brief first. Do not ask for a separate
-external source only to make this subsection look complete.
-
-Ask the host's retrieval channel for competitor or industry material only when
-it can change the investment conclusion, such as when competitive pressure,
-market-share loss, peer margins, industry cyclicality, regulation, or structural
-industry change is central to the thesis.
-
-If peer margin data is not already available from the existing source ledger
-and is not thesis-critical, write `not available` rather than asking for another
-source only to complete this subsection.
-
-### 7.2 Diworsification Check
-
-Have recent acquisitions or strategy moved outside core competency?
-
-If yes → assess risk.
-
-### 7.3 Institutional Ownership
-
-- % held by institutions
-- Lower ownership may allow re-rating potential.
-
-Use only if available from the existing source ledger or quickly available from
-the proxy / ownership source already gathered. If not available, write
-`unknown`; do not add a new source unless ownership could materially change the
-investment conclusion.
-
-### 7.4 Management Ownership
-
-Distinct from insider *buying* signals, this is
-a one-time baseline criterion:
-
-- Does management (CEO, CFO, key executives) hold a meaningful
-  equity stake relative to their compensation?
-- Is the ownership stake a result of open-market purchases or
-  purely from option grants?
-
-Open-market purchases by management → strong alignment signal.
-Ownership purely from grants/options → weaker alignment.
-Negligible personal ownership → flag; management benefits mainly
-from salary, not stock performance.
-
-Use the proxy / ownership source if it is already in the ledger or if governance
-is thesis-critical. If management ownership is not disclosed or not gathered,
-write `unknown` and lower conviction where appropriate; do not ask for extra
-ownership sources merely to complete this subsection.
-
-## 8) Valuation
-
-**Output format: maximum 220 words**
-
-Use the valuation lens that matches the Diagnostic Profile.
-
-### 8.1 Valuation Lens by Profile
-
-Apply the most relevant lens:
-- **High cyclicality** → use normalized or mid-cycle earnings; low P/E at peak can be dangerous, high P/E at trough can be opportunity
-- **Active/Recovering turnaround** → P/E may be misleading; focus more on survival, dilution, and normalized earning power
-- **Fast growth** → PEG/PEGY, runway, and growth durability matter most
-- **Strong asset angle** → asset value, catalyst, and downside floor may matter more than P/E
-- **Stalwart-like / Slow / Mature** → P/E, dividend yield, and earnings line are more informative
-
-### 8.2 Core Metrics
-
-State:
-- trailing P/E
-- growth expectation band
-- dividend yield
-
-Compare to:
-- own history
-- the most relevant diagnostic lens
-
-If earnings are negative or distorted, say P/E is not meaningful.
-
-### 8.3 PEG & PEGY
-
-PEG = P/E ÷ growth rate  
-PEGY = P/E ÷ (growth rate + dividend yield)
-
-Use percentage terms (e.g. 15, not 0.15)
-
-Interpretation:
-- **<1** → cheap
-- **≈1** → fair
-- **1–1.5** → acceptable
-- **>1.5–2** → expensive unless exceptional
-
-### 8.4 Net Cash Adjustment
-
-Adjusted price = stock price − net cash per share  
-Recalculate effective P/E if appropriate.
-
-### 8.5 Earnings Line Check
-
-Does price sit far above or below the earnings trend?
-
-## 9) Triggered Special Modules
-
-**Output format: maximum 250 words total**
-
-Only include the modules that are triggered.  
-If none are triggered, write: **“No additional special-case module triggered.”**
-
-### 9.1 High-Cyclicality Module
-
-**Trigger:** Cyclicality = High
-
-Check:
-- past peak/trough EPS
-- current cycle position
-- inventory behavior
-- capacity additions
-- whether new competitors are entering
-
-Remember:
-- **high P/E at trough can be opportunity**
-- **low P/E at peak can be danger**
-
-### 9.2 Turnaround Module
-
-**Trigger:** Turnaround status = Active or Recovering
-
-Identify the stage:
-1. Crisis
-2. Stabilization
-3. Recovery
-4. Full re-rating
-
-Also check:
-- balance sheet survival
-- whether liquidity is enough for the next 12–24 months
-- dilution risk
-
-**Dilution warning:**
-- Has share count grown **>10%** in the last 2 years?
-- Are convertibles or warrants outstanding?
-- Evaluate recovery on a **per diluted share** basis, not just total net income
-
-### 9.3 Asset Angle Module
-
-**Trigger:** Asset angle = Possible or Strong
-
-Check:
-- nature of hidden assets
-- evidence that value exceeds market cap
-- catalyst for value realization
-- downside floor estimate
-
-Always ask: **How much can I lose?**
-
-### 9.4 Stalwart Resilience Module
-
-**Trigger:** Growth profile = Stalwart-like AND Cyclicality is not High
-
-Check how the company performed during the last 2 major recessions or market drops:
-- Did EPS decline, and by how much?
-- Was the dividend maintained or cut?
-- Did the stock recover within 12–24 months?
-
-Prefer businesses with earnings resilience or quick recovery.
-
-### 9.5 Fast-Growth Quality Module
-
-**Trigger:** Growth profile = Fast
-
-Check:
-
-**Growth rate band**
-- **20–25%** → preferred
-- **25–50%** → acceptable but scrutinize harder
-- **>50%** → extreme skepticism
-
-If growth exceeds **25%** and the industry is hot or trendy, lower conviction to **Low** regardless of other metrics.
-
-Also assess:
-- hot industry / crowded space risk
-- expansion momentum: accelerating or decelerating?
-- replication test: proven in more than one market?
-- saturation check: how penetrated is the addressable market?
-- valuation guardrail: PEG should be near 1; **>1.5** means limited margin of safety
-
-### 9.6 Mature Income Module
-
-**Trigger:** Growth profile = Slow AND Business maturity = Mature
-
-Check:
-- dividend coverage and stability
-- buybacks versus dilution
-- whether management is returning excess cash rationally
-- whether the company is a stable cash cow or a value trap
-
-
-## 10) Final Score
-
-**Output format: maximum 200 words**
-
-Based on all data analyzed, assign an **attractiveness score**.
-
-**Attractiveness score: X / 10**  
-(1 = avoid entirely; 10 = very compelling opportunity)
-
-The score rates how consistent and well-evidenced the case reads from the
-sources in the brief — it is a structural read, not a forecast of price or
-returns, and it is not a buy or sell instruction.
-
-Justify the score in **3–5 sentences**.
+This index is not the guide: name which parts you opened, and never report a step, a
+threshold, or a template you have not read in this session.