canonical/modules/M063-position-sizing-inputs-for-research-teams.md

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<!-- Module: 063 | Title: Position Sizing Inputs for Research Teams -->

## PART XIII - RISK, PORTFOLIO CONTEXT, AND DECISION MAKING | MODULE 063

# Position Sizing Inputs for Research Teams

> Mission. Translate conviction, downside, liquidity, catalyst path, and correlation into research inputs without confusing analysis with mandate.

## Decision output

Objective: Translate conviction, downside, liquidity, catalyst path, and correlation into research inputs without confusing analysis with mandate. The completed work product must be reproducible from evidence, show the downstream financial or decision effect when material, state the strongest contrary case, and define a dated update rule.

## Explicit operating procedure

1. Provide research inputs rather than an unauthorized portfolio decision: expected operating range, valuation distribution, permanent-loss case, catalyst path, liquidity, and confidence in key assumptions.

1. Separate thesis confidence from upside magnitude. A high-upside security can have low evidence quality, binary risk, or severe dilution/illiquidity.

1. Describe downside by mechanism and recovery, including balance-sheet path, not only historical volatility or a percentage stop.

1. Estimate trading liquidity, event gaps, borrow/short mechanics where relevant, and correlation/common-factor exposure that can make several seemingly different positions fail together.

1. State which risks are diversifiable versus thesis-specific and which evidence would warrant changing the research confidence.

1. Provide scenario inputs consistently so the portfolio owner can apply mandate-specific risk budgets independently.

## Required evidence and model bridge

- Primary-source set: risk register, stress model, correlation/liquidity inputs, decision journal, forecast-error history. Preserve exact document/version, date, period, and source location for every material factual input used in position sizing inputs for research teams.

- For each key concept - return distribution, permanent impairment, liquidity, correlation, factor exposure, catalyst timing - state whether it is a reported fact, analyst calculation, management claim, external estimate, or judgment. Quantitative concepts must retain raw components and units; qualitative concepts must retain the specific evidence and counterevidence.

- Map only economically relevant findings into the model or decision record. Process-control modules such as position sizing inputs for research teams may have no direct valuation line; in that case document the downstream error or governance risk the control prevents.

## Metrics and calculation controls

| Metric / concept | Construction | Required validation |
| --- | --- | --- |
| expected value | Sum of scenario value × scenario probability across mutually exclusive, collectively exhaustive cases. | expected value: Document scenario definitions and probabilities; verify probabilities sum appropriately, inputs are independently sourced, and sensitivity is recomputed rather than manually overridden. |
| severe downside | Equity value or loss in the predefined severe but plausible operating/financing scenario, including dilution, refinancing, and claim-priority effects. | severe downside: Document scenario definitions and probabilities; verify probabilities sum appropriately, inputs are independently sourced, and sensitivity is recomputed rather than manually overridden. |
| liquidity days | Available unrestricted liquidity divided by average daily cash operating outflow under the relevant stress case. | liquidity days: Tie cash, debt, facilities, maturities, and fixed charges to balance-sheet/footnote data; stress availability restrictions, refinancing assumptions, and downside cash generation. |



## Worked application

> Case: two ideas have equal upside but radically different downside and liquidity.

- Reconstruct the relevant reported fact from primary evidence before interpreting the case. For position sizing inputs for research teams, show the raw components rather than only the resulting ratio or narrative.

- Build the causal chain through return distribution, permanent impairment, liquidity, correlation, then identify which link is directly observed and which link remains an assumption.

- Calculate expected value, severe downside, liquidity days from sourced components under the reported/base interpretation and at least one skeptical alternative interpretation.

- Translate the difference between cases into the variable that matters for position sizing inputs for research teams: evidence quality, revenue, operating profit/NOPAT, free cash flow, invested capital, financing/dilution, risk, or valuation. Mark non-applicable links instead of inventing them.

- Expert consistency test: research supplies transparent distributions and constraints instead of hiding everything in a conviction score.

- Precommit the specific future filing, KPI, customer/supplier observation, regulator action, or market input that would materially invalidate the position sizing inputs for research teams conclusion.

## Failure tests

- FAIL if return distribution cannot be defined and reproduced from the source pack.

- FAIL if research communicates conviction without explicit downside distribution, evidence quality, liquidity, duration, correlation drivers, and thesis-break path.

- FAIL if the position sizing inputs for research teams conclusion depends on an unstated assumption, unreconciled definition, or evidence that cannot be traced to its source/version.

- FAIL if evidence materially inconsistent with the position sizing inputs for research teams conclusion is omitted, reclassified, or dismissed without a documented definition, materiality, causal, timing, and source-quality analysis.

## Completion test

A senior reviewer must be able to reproduce the position sizing inputs for research teams conclusion, vary the most sensitive assumption independently, trace the change through the model, understand the strongest opposing case, and identify the next evidence that would force an update. If any link is missing, the module remains open.