Sai Kiran Vella
219 lines
9.5 KiB
JavaScript
219 lines
9.5 KiB
JavaScript
// Credit rating scale (S&P convention).
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// Bond.js converts letter ratings to these numbers; BondScorer uses them for gate checks.
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// Investment grade = BBB (7) and above.
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export const CREDIT_RATING_SCALE = {
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AAA: 10,
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AA: 9,
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A: 8,
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BBB: 7,
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BB: 6,
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B: 5,
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CCC: 4,
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CC: 3,
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C: 2,
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D: 1,
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};
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// ─────────────────────────────────────────────────────────────────────────────
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// Fundamental baseline — Graham / value-investing style.
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// MarketRegime.js overrides the valuation gates for INFLATED-mode analysis.
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// Sector overrides are structural — they apply in both modes.
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// ─────────────────────────────────────────────────────────────────────────────
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export const ScoringRules = {
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STOCK: {
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gates: {
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maxDebtToEquity: 1.5, // Graham ceiling; 3.0 was too permissive — most distress starts above 2x
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minQuickRatio: 0.8, // Raised from 0.5: below 0.8 signals real liquidity stress in non-tech
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maxPERatio: 15, // Graham's actual rule: never pay more than 15x trailing earnings
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maxPegGate: 1.0, // PEG > 1.0 means you're paying full price for growth (Lynch standard)
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},
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weights: {
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margin: 2, // net profit margin
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opMargin: 2, // operating margin (pricing power)
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roe: 3, // return on equity — Buffett's primary quality metric
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peg: 2, // valuation relative to growth
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revenue: 2, // revenue growth
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fcf: 3, // raised: FCF is the most manipulation-resistant quality signal
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},
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thresholds: {
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marginHigh: 15, // lowered from 20: 15% net margin is genuinely excellent across most sectors
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marginMed: 8, // lowered from 10: 8% is the realistic mid-tier for industrials/retail
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opMarginHigh: 20,
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opMarginMed: 10,
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roeHigh: 15, // lowered from 20: sustainable 15% ROE is Buffett-quality; 20% is rare/fleeting
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roeMed: 10, // kept — 10% is the cost-of-equity floor for most businesses
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pegHigh: 0.75, // raised bar: PEG < 0.75 is genuinely cheap relative to growth
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pegMed: 1.0,
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revHigh: 10, // lowered from 15: 10% organic revenue growth is strong for mature cos
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revMed: 5,
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fcfHigh: 5,
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fcfMed: 2,
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},
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SECTOR_OVERRIDE: {
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// Large-cap tech borrows to fund buybacks — D/E 2.0 is structural, not distress.
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// AAPL quick ratio runs ~0.9 by design (aggressive working capital management).
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// Raised maxPERatio from 30→35: mega-cap tech comps (MSFT, GOOG) trade 28-35x sustainably.
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// Tightened maxPegGate from 2.0→1.5: paying >1.5x PEG for tech rarely ends well long-term.
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TECHNOLOGY: {
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gates: { maxDebtToEquity: 2.0, minQuickRatio: 0.8, maxPERatio: 35, maxPegGate: 1.5 },
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weights: { margin: 1, opMargin: 3, roe: 3, peg: 3, revenue: 4, fcf: 3 },
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thresholds: { marginHigh: 25, opMarginHigh: 25, roeHigh: 20, pegHigh: 1.0, revHigh: 20 },
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},
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// REITs: P/E and PEG are distorted by depreciation — score on yield and P/FFO.
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// Raised minYield from 4.0→4.5: 10Y yield at 4.5%+ means REITs must clear that bar to add value.
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// Tightened maxPFFO from 15→18: 15 was too tight; well-run REITs (O, VICI) trade 17-22x P/FFO.
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// Explicitly zero out weights that don't apply to REITs.
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REIT: {
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gates: { maxDebtToEquity: 6.0, minQuickRatio: 0.1, maxPERatio: 9999, maxPegGate: 9999 },
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weights: { margin: 0, opMargin: 0, roe: 0, peg: 0, revenue: 0, fcf: 0, yield: 5, pFFO: 3 },
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thresholds: { minYield: 4.5, maxPFFO: 20 },
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},
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// Banks: P/E and PEG are distorted by loan loss provisions.
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// Price-to-Book is the primary valuation metric.
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// Lowered maxPriceToBook from 2.0→1.5: P/B > 1.5 for banks outside crisis recovery is expensive.
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// Tightened ROE threshold: 12% is the realistic cost-of-equity for US banks; 10% is break-even.
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FINANCIAL: {
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gates: {
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maxDebtToEquity: 9999,
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minQuickRatio: 0.1,
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maxPERatio: 9999,
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maxPegGate: 9999,
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maxPriceToBook: 1.5,
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},
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weights: { margin: 0, opMargin: 0, peg: 0, roe: 5, revenue: 1, fcf: 1, priceToBook: 3 },
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thresholds: { roeHigh: 15, roeMed: 12, revHigh: 10, revMed: 5 },
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},
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// Energy: capital-heavy, cyclical. D/E up to 1.5 is normal.
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// FCF yield is the primary quality signal (replaces margin); opMargin matters for integrated cos.
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// Div yield is scored because energy majors return capital via dividends.
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ENERGY: {
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gates: { maxDebtToEquity: 1.5, minQuickRatio: 0.6, maxPERatio: 15, maxPegGate: 1.5 },
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weights: { margin: 0, opMargin: 3, roe: 2, peg: 1, revenue: 2, fcf: 4, yield: 3 },
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thresholds: {
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opMarginHigh: 20,
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opMarginMed: 10,
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roeHigh: 15,
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roeMed: 8,
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fcfHigh: 8,
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fcfMed: 4,
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},
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},
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// Healthcare: high R&D burn distorts net margin; focus on revenue growth and FCF.
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// P/E can be elevated for pipeline names — gate loosened slightly.
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HEALTHCARE: {
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gates: { maxDebtToEquity: 1.5, minQuickRatio: 1.0, maxPERatio: 25, maxPegGate: 1.5 },
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weights: { margin: 1, opMargin: 2, roe: 2, peg: 2, revenue: 4, fcf: 3 },
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thresholds: {
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marginHigh: 20,
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marginMed: 10,
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roeHigh: 20,
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roeMed: 12,
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revHigh: 15,
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revMed: 8,
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fcfHigh: 8,
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fcfMed: 3,
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},
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},
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// Communication Services: META, GOOGL, NFLX, DIS, T, VZ.
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// Mix of high-margin platform businesses and capital-heavy telcos/media.
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// P/E gate at 25: META and GOOGL sustainably trade 20-25x; below 15 is wrong for platforms.
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// High FCF weight: platform businesses are judged on FCF (ad revenue converts 35-40% to FCF).
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// Revenue growth matters more than for mature industrials — network effects are the moat.
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COMMUNICATION: {
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gates: { maxDebtToEquity: 2.0, minQuickRatio: 0.8, maxPERatio: 25, maxPegGate: 1.5 },
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weights: { margin: 2, opMargin: 3, roe: 2, peg: 2, revenue: 3, fcf: 4 },
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thresholds: {
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marginHigh: 25,
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marginMed: 12,
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opMarginHigh: 30,
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opMarginMed: 15,
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roeHigh: 20,
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roeMed: 12,
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pegHigh: 1.0,
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pegMed: 1.5,
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revHigh: 15,
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revMed: 5,
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fcfHigh: 8,
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fcfMed: 3,
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},
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},
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// Consumer Staples: KO, PG, WMT, COST, KR. Slow-growth, recession-resistant.
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// Lower revenue growth expectations (2-5% is good for staples).
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// Higher margin thresholds — pricing power is the primary moat (not growth).
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// D/E tolerance is low — staples should be conservatively financed.
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CONSUMER_STAPLES: {
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gates: { maxDebtToEquity: 1.5, minQuickRatio: 0.5, maxPERatio: 22, maxPegGate: 2.0 },
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weights: { margin: 3, opMargin: 3, roe: 3, peg: 1, revenue: 1, fcf: 3 },
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thresholds: {
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marginHigh: 12,
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marginMed: 7,
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opMarginHigh: 18,
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opMarginMed: 10,
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roeHigh: 20,
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roeMed: 12,
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pegHigh: 1.5,
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pegMed: 2.0,
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revHigh: 5,
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revMed: 2,
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fcfHigh: 5,
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fcfMed: 2,
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},
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},
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// Consumer Discretionary: AMZN, HD, MCD, NKE, TSLA. Cyclical, growth-oriented.
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// Revenue growth is the primary signal — discretionary spending expands with the economy.
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// Margins are thinner than staples (competitive markets); FCF matters for capital return.
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// P/E gate relaxed slightly — quality retailers trade at 20-30x on durable FCF.
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CONSUMER_DISCRETIONARY: {
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gates: { maxDebtToEquity: 2.0, minQuickRatio: 0.5, maxPERatio: 25, maxPegGate: 1.5 },
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weights: { margin: 2, opMargin: 2, roe: 2, peg: 2, revenue: 4, fcf: 3 },
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thresholds: {
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marginHigh: 10,
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marginMed: 5,
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opMarginHigh: 15,
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opMarginMed: 8,
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roeHigh: 20,
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roeMed: 12,
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pegHigh: 1.0,
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pegMed: 1.5,
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revHigh: 12,
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revMed: 5,
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fcfHigh: 5,
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fcfMed: 2,
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},
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},
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},
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},
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ETF: {
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// Raised expense gate from 0.5→0.2: with so many sub-0.1% index ETFs available,
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// a 0.5% expense ratio is genuinely hard to justify except for niche/active strategies.
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gates: { maxExpenseRatio: 0.2 },
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weights: { yield: 2, lowCost: 4, fiveYearReturn: 2 }, // cost is #1 predictive factor; 5Y return rewards consistency
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thresholds: {
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minYield: 1.5,
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maxExpense: 0.05, // 0.05% is achievable for broad market ETFs
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minVolume: 1000000, // 1M ADV is the real liquidity floor to avoid slippage
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minFiveYearReturn: 8.0, // S&P 500 long-run real return ~7-10%; 8% filters underperformers
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},
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},
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BOND: {
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// Kept investment-grade floor at BBB — still correct. Below BBB is speculative.
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// Raised minSpread from 1.0→1.5: with risk-free at 4.5%, you need >1.5% spread
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// to be compensated for credit risk vs just buying Treasuries.
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// Tightened maxDuration from 10→7: in a HIGH rate regime, duration > 7 carries
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// meaningful rate-sensitivity risk (every 1% rate rise ≈ 7% price loss).
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gates: { minCreditRating: 7 }, // BBB = investment-grade floor
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weights: { yieldSpread: 3, duration: 2 },
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thresholds: { minSpread: 1.5, maxDuration: 7 },
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},
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};
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