git:20260429.486ed7f to git:20260429.3f32fcf

- description: "Apply Graham value investing to stock screening, margin of safety, Mr. Market, portfolio allocation, and investment vs speculation questions."

- ## Overview

- This skill applies Benjamin Graham's framework from *The Intelligent Investor* to practical investing decisions. It helps users evaluate whether an action is investment or speculation, screen stocks for defensive investors, estimate margin of safety, respond to market fluctuations, and choose a disciplined stock/bond allocation.

- Use it as a decision-support tool for long-term, businesslike investing. Do not use it to forecast markets, chase momentum, justify leverage, or provide personalized regulated financial advice.

- Use this skill whenever the user asks questions such as:

- - "What price would give me a margin of safety?"

- - "The market dropped. Should I sell?"

- - "Is this investment or speculation?"

- - "Is this IPO, hot sector, or high-growth story investable?"

- Every substantive claim based on Graham's methodology must include a citation to the original text.

- **Quote files to load when needed:**

- - `value-investing-quotes.md` — core definitions, margin of safety, Mr. Market, defensive allocation, and Graham's central investing principles.

- - `market-philosophy-quotes.md` — market cycles, earnings skepticism, IPO warnings, index funds, adviser conflicts, net-current-asset bargains, and historical humility.

- **Citation format — always use this exact structure:**

- - Include at least one citation per major section of a Graham-method answer.

- - Match the citation anchor to the closest principle being applied.

- - Use quotes only from the `quotes/` files. Do not invent or paraphrase quotation text as if it were verbatim.

- - If no exact quote fits, cite the closest anchor and clearly state that your analysis is a paraphrased application.

- | Workflow | User question pattern | Inputs | Steps | Output | Architecture |

- | Investment/speculation classification | "Is this trade investing?" | Security, thesis, holding period, analysis done, leverage | Test analysis, principal safety, adequate return, separation of speculation funds | Clear classification and risk boundary | Dimension |

- | Defensive stock screen | "Does X pass Graham's criteria?" | Financial statements, price, EPS history, dividends, debt, book value | Apply seven criteria without exceptions | Pass/fail table and disqualification points | Dimension |

- | Margin of safety estimate | "What price is safe?" | Current price, average earnings, book value, bond yield, assumptions | Estimate value conservatively, compare price to value, calculate discount/premium | Buy zone, no-buy zone, data gaps | Dimension |

- | Market fluctuation response | "Stock fell. Should I sell?" | Price change, business change, valuation, investor constraints | Separate quotation from business value; assess permanent impairment | Hold/buy/sell framework, not prediction | Dimension |

- | Portfolio policy | "How should I allocate?" | Investor type, time/effort, income need, stock/bond yields | Choose 25/50/75 stock-bond range and rebalancing rule | Allocation recommendation with guardrails | Dimension |

- | Adviser/fund evaluation | "Should I use this fund/adviser?" | Fees, strategy, promises, incentives, benchmark | Check cost drag, incentive conflict, performance claims | Use/avoid verdict and index-fund default | Dimension |

-

- This is a single-file skill because the workflows are tightly coupled by the same final decision: protect principal, demand adequate return, and avoid emotional or promotional errors. The dimensions may be applied independently, but a complete Graham answer usually combines several of them.

-

- ## Core Principle

-

- Investment is most intelligent when it is most businesslike. Treat a stock as an ownership interest in a business, estimate value independently, and buy only when the quoted price gives a margin of safety. Market prices are offers, not instructions. Forecasts, excitement, and cleverness are unreliable substitutes for arithmetic, discipline, and temperament.

-

- ## DIMENSION 1: Investment vs. Speculation

-

- **The Rule:** An investment operation requires thorough analysis, reasonable safety of principal, and an adequate return. Anything missing from that triad makes the operation speculative.

-

- ### Key questions to ask:

-

- - What analysis has been done on the underlying business or security?

- - Is the expected protection of principal based on assets, earnings power, or contractual coverage?

- - Is the expected return adequate relative to the risk?

- - Is the user relying on price momentum, forecasts, promotion, or market timing?

- - Is leverage involved?

- - Is the user mixing speculative capital with long-term investment capital?

-

- ### Decision criteria / Checklist:

-

- - Investment: business or security analyzed, principal protection explicit, return adequate.

- - Investment: price paid is justified by conservative facts, not optimistic projections.

- - Speculation: thesis depends mainly on price appreciation, market mood, a catalyst, or someone else paying more.

- - Speculation: IPOs, hot issues, promoted securities, and margin-financed trades require special warning.

- - Speculation may be allowed only if labeled honestly, sized small, and kept separate.

-

- ### Warning signals:

-

- - "This time is different."

- - "Everyone is buying it."

- - "The company is great, so price does not matter."

- - "I will sell before the crowd does."

- - "I can borrow cheaply and improve returns."

-

- ### Agent instruction:

-

- When the user presents a buy/sell/trade decision, classify the operation before offering any valuation opinion. If the operation fails Graham's investment definition, label it speculation clearly and recommend a separate, limited speculation account rather than treating it as a core investment.

-

- ## DIMENSION 2: Defensive vs. Enterprising Investor

-

- **The Rule:** Graham's advice depends on temperament and effort. Defensive investors seek safety, simplicity, and freedom from effort; enterprising investors may seek better results only by applying more work, discipline, and selectivity.

-

- ### Key questions to ask:

-

- - How much time and skill will the user realistically devote to analysis?

- - Is the user trying to avoid serious mistakes or to pursue above-average returns?

- - Does the user have the temperament to act against market emotion?

- - Is the user willing to hold a diversified portfolio and rebalance mechanically?

-

- ### Decision criteria / Checklist:

-

- - Defensive investor: default to diversified high-grade bonds plus leading common stocks or broad index funds.

- - Defensive investor: use strict stock selection criteria; do not stretch for popular growth stories.

- - Enterprising investor: may search for bargain issues, secondary companies, and special situations, but only with rigorous analysis.

- - Enterprising investor: extra return must come from extra discipline and work, not from extra risk or optimism.

-

- ### Warning signals:

-

- - A defensive investor trying to behave like a trader.

- - An enterprising investor relying on tips instead of analysis.

- - Treating effort as a substitute for margin of safety.

- - Concentrating because of confidence rather than demonstrable value.

-

- ### Agent instruction:

-

- Ask or infer the user's investor type early. If the user has not provided enough evidence of time, discipline, and analytical skill, default to defensive-investor recommendations.

-

- ## DIMENSION 3: Defensive Investor Stock Selection

-

- **The Rule:** A defensive stock must pass Graham's quantitative tests for size, financial strength, earnings stability, dividends, earnings growth, and moderate valuation. A wonderful business can still fail the screen if the price is too high.

-

- ### Key questions to ask:

-

- - Is the company large enough to avoid small-company fragility?

- - Does the balance sheet show strong liquidity and moderate debt?

- - Has the company earned money in every year of the last decade?

- - Has it paid uninterrupted dividends for roughly two decades?

- - Has per-share earnings grown meaningfully across a decade?

- - Is the P/E ratio moderate using average earnings, not a single peak year?

- - Is price-to-book moderate, or does the P/E x P/B product stay within Graham's combined limit?

-

- ### Decision criteria / Checklist:

-

- Use these thresholds as Graham-style tests, while noting that dollar-size thresholds should be interpreted in today's market context:

-

- 1. Adequate size: large, established enterprise.

- 2. Strong financial condition: current ratio around 2.0 or better for industrials; debt not excessive relative to working capital or equity.

- 3. Earnings stability: positive earnings for each of the past 10 years.

- 4. Dividend record: long, uninterrupted dividend history, ideally 20 years.

- 5. Earnings growth: at least one-third growth in per-share earnings over 10 years, using multi-year averages.

- 6. Moderate P/E: no more than about 15 times average earnings.

- 7. Moderate assets multiple: price-to-book no more than about 1.5, or P/E x P/B no more than about 22.5.

-

- ### Warning signals:

-

- - High P/E justified by "quality" or "AI/platform/brand premium."

- - Book value ignored entirely for an asset-heavy or financial business.

- - Dividend record broken or too short for a defensive investor.

- - Earnings boosted by one-time items.

- - Balance sheet strength assumed from reputation rather than tested.

-

- ### Agent instruction:

-

- For a defensive stock evaluation, present a pass/fail table with the actual figure for each criterion. Do not average the score into a soft rating. If a criterion fails, state that the stock does not qualify for the defensive investor at the current price.

-

- ## DIMENSION 4: Margin of Safety

-

- **The Rule:** The margin of safety is the central concept of sound investing. Buy only when the price is sufficiently below conservatively estimated value to absorb errors, adverse events, and ordinary uncertainty.

-

- ### Key questions to ask:

-

- - What conservative value estimate is justified by current assets, normalized earnings, or bond-like coverage?

- - How far below that value is the current price?

- - Does the discount remain after adjusting for cyclicality, accounting quality, and business deterioration?

- - Is the earnings yield attractive relative to high-grade bond yields?

- - Is the margin based on facts already present, not hoped-for growth?

-

- ### Decision criteria / Checklist:

-

- - Conservative valuation first; current market price second.

- - Prefer normalized multi-year earnings to peak-year earnings.

- - For defensive stocks, P/E and P/B limits are part of the safety test.

- - For bargain issues, a large discount to net current asset value is especially strong evidence.

- - Diversification is part of safety: one cheap stock can disappoint; a diversified group of cheap securities is more reliable.

-

- ### Warning signals:

-

- - Paying full price for future growth.

- - Reducing the required discount because the story is exciting.

- - Calling a 5-10% discount a margin of safety when inputs are uncertain.

- - Using aggressive terminal multiples or heroic growth rates.

- - Ignoring dilution, debt, or accounting quality.

-

- ### Agent instruction:

-

- When asked "is it cheap?" compute or request enough data to estimate normalized earnings value, earnings yield, P/E, P/B, and discount/premium to value. State the margin of safety as a percentage. If the result is a premium, say "negative margin of safety."

-

- ## DIMENSION 5: Mr. Market and Market Fluctuations

-

- **The Rule:** Market quotation is there to serve the investor, not instruct the investor. Price declines are dangerous only when value deteriorates or the investor is forced to sell.

-

- ### Key questions to ask:

-

- - Has the underlying business value changed, or only the quoted price?

- - Is the price movement caused by temporary sentiment, cyclical fear, or permanent impairment?

- - Would the user still want to own the business if the market closed for several years?

- - Is the user leveraged or otherwise forced to sell?

- - Does the new price create a better margin of safety?

-

- ### Decision criteria / Checklist:

-

- - If business value is intact and price falls, expected return may improve.

- - If business value deteriorates, a lower price may still be unsafe.

- - If price rises far above value, consider selling or reducing.

- - Never let daily quotations define intrinsic value.

- - Use rebalancing and pre-set criteria to reduce emotional decisions.

-

- ### Warning signals:

-

- - Selling because price fell, without business analysis.

- - Buying because price rose, without margin of safety.

- - Treating volatility as risk for a long-term unleveraged investor.

- - Reading market news as if it were valuation.

-

- ### Agent instruction:

-

- For any market-move question, begin by separating price change from value change. Then test whether the user's original thesis, balance sheet, earnings power, and margin of safety have changed.

-

- ## DIMENSION 6: Portfolio Allocation and Funds

-

- **The Rule:** The defensive investor should hold both stocks and high-grade bonds, normally around 50/50 and never less than 25% in either category. Fund and adviser choices should be judged by cost, incentives, and realistic expectations.

-

- ### Key questions to ask:

-

- - Is the user defensive or enterprising?

- - What are current stock earnings yields relative to high-grade bond yields?

- - Does the user need income stability, inflation protection, or long-term growth?

- - What are the fees and incentives of any fund or adviser?

- - Is the adviser promising market-beating results?

-

- ### Decision criteria / Checklist:

-

- - Default allocation: 50% stocks / 50% high-grade bonds.

- - Range: 25-75% stocks and 25-75% bonds.

- - Shift only when relative valuations are clearly attractive or unattractive.

- - Rebalance mechanically rather than forecasting market direction.

- - For most defensive investors, low-cost index funds are preferable to expensive active funds.

- - Evaluate advisers as risk managers and behavior coaches, not fortune-tellers.

-

- ### Warning signals:

-

- - 100% stock or 100% bond allocation justified by a forecast.

- - High fees sold as expertise.

- - Adviser compensation that rewards activity or product sales.

- - Recent fund performance marketed as repeatable skill.

-

- ### Agent instruction:

-

- For allocation questions, recommend a stock/bond range, a rebalancing rule, and the data that would justify a tilt. Do not recommend all-in or all-out market timing.

-

- ## Query Response Framework

-

- ### Query Type 1: "Should I buy stock X?"

-

- 1. Identify investor type: defensive or enterprising.

- 2. Classify the proposed action as investment or speculation.

- 3. Run the defensive screen if the user is defensive or asks for Graham criteria.

- 4. Estimate margin of safety using normalized earnings, P/E, P/B, earnings yield, and conservative value.

- 5. Apply Mr. Market: is the current price an opportunity or a euphoric quotation?

- 6. Give a verdict: qualifies, watchlist only, speculative, or reject.

-

- ### Query Type 2: "What price would be attractive?"

-

- 1. Normalize earnings with multi-year averages.

- 2. Apply conservative valuation multiples rather than market multiples.

- 3. Compute maximum defensive price and a stricter safety price.

- 4. Explain what business deterioration would require lowering the estimate.

- 5. Output a buy zone, no-buy zone, and required monitoring data.

-

- ### Query Type 3: "The market dropped. Should I sell?"

-

- 1. Separate price movement from value movement.

- 2. Check business fundamentals and debt/liquidity.

- 3. Recalculate margin of safety at the new price.

- 4. Check whether the user is forced to sell.

- 5. Recommend hold, add, reduce, or sell based on value impairment and allocation discipline.

-

- ### Query Type 4: "How should I allocate my portfolio?"

- 1. Determine defensive vs. enterprising profile.

- 2. Start from 50/50 stocks/bonds.

- 3. Use the 25/75 guardrails.

- 4. Compare stock earnings yields with bond yields if data is available.

- 5. Recommend rebalancing rules and suitable low-cost vehicles.

- ### Query Type 5: "Should I trust this fund, adviser, IPO, or promoted idea?"

- 1. Identify incentives, fees, and promises.

- 2. Ask whether the opportunity has enough operating history and analyzable facts.

- 3. Treat aggressive promotion and hot issuance as warning signals.

- 4. Compare to a low-cost index or simple defensive portfolio.

- 5. Give a use/avoid verdict with the specific Graham reason.

- ## Output Format

- ### For Stock Evaluation

- ## [Company] — Graham Investment Evaluation

-

- **Investor type:** Defensive / Enterprising / Unknown

- **Operation classification:** Investment / Speculation / Mixed

- ### Defensive Criteria

- | Criterion | Graham requirement | Current data | Pass/Fail |

- |---|---:|---:|---|

- ### Margin of Safety

- - Normalized earnings value:

- - Current price:

- - Discount / premium to value:

- - Earnings yield vs bond yield:

- - P/B and P/E x P/B:

- ### Mr. Market Check

- - What changed in price:

- - What changed in business value:

- - Emotional risk:

- ### Verdict

- - Graham classification:

- - Action: buy / watchlist / hold / reduce / avoid / speculative only

- - Citation:

- ```

- ### For Portfolio Allocation

- ```markdown

- ## Graham Portfolio Policy

- - Investor type:

- - Starting allocation:

- - Recommended range:

- - Valuation tilt:

- - Rebalancing rule:

- - Fund/adviser cautions:

- - Citation:

- ```

- ## Critical Reminders

- 1. Price and value are different. Treat price as an offer, not a command.

- 2. Margin of safety is not optional; it is the central protection against error.

- 3. Never forecast the market as the basis for an investment policy.

- 4. A great company can be a poor investment at the wrong price.

- 5. Speculation must be named honestly, sized modestly, and kept separate.

- 6. Defensive investors should prefer simplicity, diversification, and low costs.

- 7. Earnings require skepticism; normalize them and watch for accounting distortions.

- 8. The investor's temperament is part of the method. Panic and enthusiasm both destroy discipline.