shared/pm-judgment-heuristics.md

# Public Equity PM Judgment Heuristics

Use this shared standard for Public Equity Investing skills when the user is diligencing a listed equity, public-company catalyst, public-company model, long/short pitch, sell-side note, ETF/index constituent, or portfolio position.

## Audience Modes

- `long_only_pm`: emphasize thesis durability, downside capture, benchmark-relative risk, liquidity, add/trim discipline, and portfolio role.
- `long_short_hf`: emphasize variant perception, catalyst path, scenario skew, borrow/crowding, hedge/cover rules, gross/net exposure, and timing risk.
- `sell_side_research`: emphasize rating and target discipline, estimate revisions, Street debate framing, risk-to-rating, client readability, and compliance-safe wording.
- `etf_index_diligence`: emphasize index methodology, constituent weight, float/liquidity, ETF ownership, passive flow relevance, factor/sector exposure, rebalance risk, and tracking-error implications.
- `public_equity_diligence`: emphasize source-backed issuer diligence, business quality, management credibility, governance, accounting quality, capital allocation, valuation risk, and the next diligence source needed.

## Veteran PM Questions

Every substantial output should answer these before it adds background:

1. What is mispriced, if anything?
2. What is already priced in?
3. What proves the thesis?
4. What kills the thesis?
5. Why now?
6. What changes sizing, rating, target, hedge, trim, exit, cover, or watchlist status?
7. What evidence is missing?

## Core Heuristics

- Variant wedge: separate a known fact from the mispriced insight. If there is no variant wedge, say the idea is a monitoring item or pass.
- What is priced in: state what the current price, consensus, positioning, or benchmark ownership already appears to discount before recommending action.
- Estimate path: identify the revenue, margin, EPS, FCF, KPI, or multiple path that must move for the stock to work.
- Valuation skew: show base/upside/downside and whether the current price already pays for the upside case.
- Downside mechanism: explain how money is lost before explaining how money is made.
- Catalyst quality: distinguish hard dates, evidence windows, soft narrative catalysts, and no-catalyst setups.
- Ownership and positioning: flag liquidity, capacity, passive ownership, ETF/index exposure, short interest, borrow, crowding, and factor/sector exposure when relevant.
- Benchmark and factor exposure: state whether the security is an absolute-return idea, benchmark-relative active bet, hedge, factor expression, or constituent diligence item.
- Falsifiers: make every thesis test observable, dated, and connected to a source, KPI, model line, or event.
- Action discipline: classify the next action as `add`, `press`, `hold`, `trim`, `exit`, `cover`, `hedge`, `watchlist`, `pass`, `wait for proof`, or `re-underwrite`.

## Taste Rules

- No generic `good company / cheap stock` conclusions. Name the specific mispricing or say none is evident.
- Separate company thesis from stock thesis. A good company can be a bad stock; a bad print can create a better setup.
- Label each important claim as fact, management claim, consensus, market data, model output, assumption, or PM judgment.
- Use freeze times and as-of dates for consensus, price, ownership, liquidity, borrow, options, index, ETF, and short-interest data.
- Penalize uncited catalysts, stale market data, false precision, and unsupported claims about what the market believes.
- Do not smooth over missing data. Put missing evidence into the decision, not just the appendix.

## PM/Risk Workflow Lens

Use this shared lens for `portfolio-risk-management` whenever the user is sizing or hedging a public-equity position.

- Alpha vs unwanted exposure: isolate the idiosyncratic, catalyst, factor, benchmark, or index exposure the PM is intentionally paid to own from the beta, factor, sector, liquidity, borrow, options, FX, commodity, rates, crowding, or gap risk that is accidental.
- Retained exposure: state what risk remains after the size or hedge recommendation. A hedge that removes the actual stock thesis is usually worse than a smaller position.
- Binding constraint: name the tightest credible limiter across downside loss, liquidity, borrow, gross/net/beta/factor exposure, active weight, option premium/Greeks, mandate, catalyst timing, and confidence.
- Hedge-failure scenario: include one case where the hedge, pair, ETF, option, or macro proxy fails when the equity position is under pressure.
- Size-down/no-hedge alternative: compare the proposed hedge to reducing gross, using a smaller starter size, or doing nothing when basis risk, cost, or alpha destruction is worse than the exposure.
- Action rules: define add/trim/exit/cover/resize/roll/remove rules tied to observable prices, thesis evidence, liquidity, borrow, option expiry, catalyst path, factor exposure, or hedge basis.
- Credit signal boundary: CDS levels, credit spreads, ratings, refinancing stress, maturity walls, and covenant headlines may inform public-equity downside or solvency risk. Do not size or recommend CDS, bonds, loans, spread DV01/CS01, capital-structure, distressed, recovery, or covenant trades inside Public Equity Investing; route those to Credit Markets.