Default Thresholds
Use these defaults when users do not provide custom risk settings.
Baseline (US Stock-Focused)
| Category | Metric | Default | Interpretation |
|---|---|---|---|
| Yield | Forward dividend yield | >= 3.5% | Kanchi Step 1 core filter |
| Yield trap | Extreme yield flag | >= 8.0% | Force deep dive before pass |
| Growth | Revenue CAGR (5y) | > 0% | Basic business expansion check |
| Growth | EPS CAGR (5y) | > 0% | Earnings trend health |
| Dividend trend | Dividend growth (5y) | Non-declining | Allow flat only with strong safety |
| Safety | EPS payout ratio | <= 70% | 70-85% = caution |
| Safety | FCF payout ratio | <= 80% | >100% = high risk |
| Balance sheet | Net debt trend | Not persistently rising | Rising 3 periods = warning |
| Balance sheet | Interest coverage | >= 3.0x | <2.5x = caution |
| Entry trigger | Yield alpha vs 5y average | +0.5pp | Default Kanchi Step 5 pullback threshold |
Instrument-Specific Notes
Use these denominator replacements for coverage checks:
| Instrument type | Primary denominator | Notes |
|---|---|---|
| Stock | FCF | Use CFO - CapEx |
| REIT | FFO/AFFO | Prefer AFFO if available |
| BDC | NII | Compare NII with distribution |
| ETF | Fund-level distribution coverage unavailable in many cases | Focus on methodology and holdings quality |
Objective Tuning
Apply profile-specific adjustments:
| Profile | Yield floor | Safety bias | Notes |
|---|---|---|---|
| Income now | 4.0% | Tight safety checks | Avoid overconcentration in one high-yield sector |
| Balanced | 3.0-3.5% | Medium | Blend current income and dividend growth |
| Growth first | 1.5-2.5% | High quality first | Accept lower initial yield for higher dividend CAGR |
Step 5 Alpha Tuning
Use this range for yield-trigger alpha:
- Stable mega-cap compounders:
+0.3pp. - Default baseline:
+0.5pp. - Higher-volatility names:
+0.8ppto+1.0pp.
Entry Signal Interpretation
When using build_entry_signals.py, interpret signals as follows:
| Signal | Meaning | Action |
|---|---|---|
| TRIGGERED | Current price <= buy target price | Ready for first tranche (40%) if thesis intact |
| WAIT | Current price > buy target price | Monitor; set limit order at buy target |
| ASSUMPTION-REQUIRED | Missing data (yield history or dividend) | Manual research needed before entry |
Drop Needed Percentage
0%: Price already at or below target.1-10%: Near entry zone; consider scaling in if pullback accelerates.>10%: Significant gap; wait for pullback or reassess target.
Portfolio Constraints
Use these as practical defaults:
- Max positions:
15-30. - Max single position at cost:
<= 8%. - Max sector exposure:
<= 25%. - High-yield bucket (REIT/telecom/utilities combined):
<= 35%.
Override only when user explicitly chooses a different policy.