How diversification, sizing and exits work
Selection and conviction. Require complete current filing metrics, matched accounting checks, an active listing, positive earnings/cash-flow multiples and a complete adjusted-price history. Rank 60% business quality + 25% earnings/cash-flow yield score + 15% three-month momentum, minus 5 points per accounting flag (maximum 20). Yield scores run from 0 at 0% to 100 at 5%; momentum scores run from 0 at −20% to 100 at +20%. Existing holdings get a 5-point selection preference to reduce turnover. Prefer uncovered supply roles, then conviction relative to volatility and correlation. No peer discount is invented for small peer groups.
Position sizes. Use 126 common trading sessions for volatility and correlations, adjusted for corporate actions. Start selected holdings at 2%, then allocate in 0.5 percentage-point increments according to conviction per unit of marginal covariance risk. Off-diagonal correlations are shrunk 25% toward zero for the risk estimate; the raw correlations govern the pair cap. Every increment must respect 12% per company, 25% per supply role, 55% per broad sector and 20% combined for pairs with correlation ≥0.75. The normal equity ceiling is 90% and estimated annual volatility ceiling 18%. If SPY is below its 200-session average and its three-month return is negative, these ceilings fall to 70% and 14%. Unused capacity stays cash. These are transparent research heuristics, not an optimized or validated trading strategy.
Cut rules. A warning caps a holding at 6%; two warnings, or failing the entry-quality rules, cap it at 3%. Warnings include a 10-point quality decline, a 10 percentage-point slowdown in sales growth, a 5-point drop in operating or cash-flow margins, a verified comparable guidance cut of at least 5%, trading below the 200-session average, a drawdown of at least 25%, or both valuation multiples more than 25% above peer medians. Quarterly deterioration compares the prior quarterly reading. Guidance uses the latest available comparable extracted disclosure within 90 days and links its filing; coverage is partial.
Exit rules. Propose a zero target for confirmed delisting, an interest-coverage or profit-without-cash failure, quality below 50, non-positive operating and cash-flow margins together, or net debt above 65% of assets. At a routine rebalance a holding may also leave when better candidates satisfy the risk and diversification rules. Missing or stale evidence triggers REVIEW and pauses additions; it does not, by itself, trigger a sell.
When it updates. The daily filings workflow refreshes completed market prices, source filings and available guidance, checks every position and saves decisions. Full selection and sizing run at the first fresh publication each week, after a held company reports a new financial period, or after a rule-version change. Evidence-backed cuts and exits apply at every daily review. The browser displays the saved targets, not a second allocation from its reduced data view. It rechecks evidence expiry between publications and pauses changes if the saved review is more than two days old or required evidence expires. At least six holdings across four primary roles are needed to establish a new allocation. Model targets are compared with the previous published targets, not actual account weights; execution, drift, taxes and trading costs are not modeled.
Information limits. The system uses SEC financial data, accounting flags, verified numeric guidance where available and market prices. It is not a comprehensive news monitor. Unknown customer contracts, unstructured news and absent guidance remain research gaps. Inspect filing dates and linked evidence before acting. Real-estate suppliers require a REIT-specific valuation model and remain excluded from new allocations.