SNOWBALLHARE PLAYBOOK
SnowballHare Klarman-Inspired Downside-First Score
A structured filter for complex, cheap-looking opportunities. It starts with permanent-loss risk, then tests the source of the discount, liquidity runway, catalyst quality, position size, and opportunity cost.
Six scoring inputs
| Input | Weight | What to check | Main evidence |
|---|---|---|---|
| Downside map | 25% | Liquidation value, cash burn, dilution, and refinancing | 10-K, 10-Q, credit documents |
| Discount source | 20% | Forced selling, complexity, or genuine impairment | Filings and event history |
| Liquidity and time horizon | 15% | Ability of company and investor to wait | Cash flow and maturities |
| Catalyst quality | 15% | Asset sale, restructuring, spin-off, or repayment | Transaction documents |
| Position-size safety | 15% | Portfolio loss under bear case | Scenario model |
| Opportunity cost | 10% | Comparison with cash and cleaner opportunities | Portfolio review |
Total score = Σ (factor score from 0–100 × factor weight).
Score bands and actions
| Score | Band | Action |
|---|---|---|
| 85–100 | Deep-diligence candidate | Verify legal priority, liquidity, and transaction evidence. |
| 70–84 | Watchlist | Resolve one or more material downside or timing gaps. |
| 50–69 | Asymmetric risk unclear | Headline discount does not yet compensate uncertainty. |
| 0–49 | Reject | Survival, recovery, or forced-sale risk is unacceptable. |
A high score is not a Buy rating. It indicates whether a situation warrants deeper legal, credit, accounting, and transaction diligence.
Hard invalidation rules
- Liquidity runway becomes shorter than realistic catalyst timing.
- Debt maturity, covenant, or collateral terms transfer expected recovery to senior claims.
- Recoverable asset value falls below the modeled bear case.
- The discount is explained by permanent impairment rather than technical selling.
- The catalyst loses financing, approval, contractual support, or a viable counterparty.
- Bear-case portfolio loss exceeds the position-size limit.
Worked score: hypothetical asset-sale situation
| Factor | Score | Weight | Contribution |
|---|---|---|---|
| Downside map | 72 | 25% | 18.0 |
| Discount source | 82 | 20% | 16.4 |
| Liquidity and time horizon | 68 | 15% | 10.2 |
| Catalyst quality | 70 | 15% | 10.5 |
| Position-size safety | 80 | 15% | 12.0 |
| Opportunity cost | 60 | 10% | 6.0 |
| Total | 100% | 73.1 |
The result is a watchlist. The apparent forced-selling discount is credible, but liquidity and catalyst scores remain too weak for action. The next diligence should test debt maturity, third-party approval, break value, and asset-sale proceeds.
Evidence workflow
- Map every security and senior claim in the capital structure.
- Build bear, base, and favorable recoveries with asset-specific haircuts.
- Calculate liquidity runway using only available cash and drawable credit.
- Document catalyst conditions, controlling parties, costs, and expected timing.
- Set position size from bear-case portfolio loss, then adjust for correlation and liquidity.
- Compare the situation with cash and cleaner opportunities.
- Record factual invalidation conditions and a review date.
Limitations
Scores can create false precision in legal and distressed situations. The model cannot replace credit documents, bankruptcy priority, tax analysis, local law, appraisal work, or direct transaction diligence. It may understate tail risk when scenarios share hidden assumptions and may overvalue catalysts controlled by third parties.
This playbook is less suitable where the investor lacks access to essential documents, cannot tolerate illiquidity, or could be forced to sell. Never infer Baupost’s current portfolio, cash, or trades from this editorial framework.