Our Investment Philosophy and Process

Long Term Observational Investing

CI prefers to allocate capital to companies and industries with a specific value proposition that are performing well or in an early phase of turnaround (observation of operating, industry and strategic trends) with focused management (value based leadership).

An observational investor accepts that the future is uncertain and that the past may repeat in unusual and unpredictable ways. However, by being focused (present and in the moment) we seek to identify value latency which may be derived from the net worth of a company's existing cash flow and net assets or future value that is latent within a company or industry due to their growth opportunities and competitive advantage.

CI's investment philosophy starts with the proposition that in most years there are a number of exceptional opportunities; each decade there are a few really big trends that drive economic, political and social behaviour; and in every field of endeavour there are a few exceptional people.

Our Investment Vision

CI's vision and strategy is the global application of the CI Way, the firm's equities value and capital allocation model. The CI Way is a culture, a way of doing business and a standardised & integrated investment philosophy. The VoF investment process has been built on 3 key investment tenets:

  1. CI is a "values first" firm built on humility.
  2. Observation not prediction.
  3. Consilience happens through building relationships at the coal face of the industry.

Our Investment Philosophy

CI's investment philosophy is based on 3 key tenets.

  1. The best risk adjusted returns are found when a stock has all three VoF qualities.
  2. CI's VoF research work is a process of observation and comparison, i.e. looking for the best value opportunities.
  3. CI looks to control risk by looking for value that is "anchored" in economic, political and social norms and measurements. To understand value we look at sales, costs, margins and returns, asset replacement value, asset/liability structure, cash generation, competitive advantage and position and latent value options. We dislike relying upon predictions to justify value.

Our Investment Process

VoF is a discipline to process complex qualitative and quantitative information on stocks and industries.

  • Value Latency

    Assess companies for their value latency, i.e. investments that provide upside due to their ability to generate more cash back than they outlay, taking into account cash flow, growth options, assets, risks and the cost of money.

  • Operating, industry and strategic trends

    Identify and observe operational, industry and strategic trends. We are interested in indicators, themes, milestones, catalysts, events and corporate actions that either precede an improved outlook for the company/industry or confirm underlying sustainable trends.

  • Focused industry and management behaviour

    Appraise company management for focused management and industry behaviour.

    We are looking for focused leaders that demonstrate a clear focus, vision, authenticity, energy, passion and competency for the business/industry.

There are five key elements to CI's process.

  1. Gather knowledge ~ ideas and knowledge are gathered through a wide range of sources, including: reading periodicals, journals, newspapers, blogs, broker reports and annual reports; consulting industry experts; and conducting financial analyses. We further enhance our information through a program of industry and company visits gaining insights and knowledge of stocks, industries and themes. In the last financial year the investment team has made over 1,000 one–on–one company or industry meetings in person or by phone in more than 25 countries.
  2. Analyse research ~ information obtained from research is compared using the VoF process and is recorded in the CI proprietary database.

    We place as much emphasis on the qualitative as we do the quantitative – beliefs and values drive customers, boards of directors and management teams. In other words, behind every number there is a human action. We attempt to understand a company's culture, structure and reasons for management’s behaviour and actions.

    We use a range of valuation methods including cash flow based valuations, EV to sales, earnings multiples, price to book and assets, PEs and yields as a way of assessing comparative value. Operating, industry and strategic trends includes an assessment of current conditions and identification of key drivers for each stock, industry or asset.

    The assessment of management is a qualitative judgment of the industry and/or company management capabilities and behaviour.
  3. Stock Selection ~ we are attracted to stocks with good value propositions determined by using CI's VoF proprietary methodology.
  4. Portfolio Construction ~ CI believes in focused portfolios that reflect our long term beliefs and ideas. We seek diversity across stocks, industries and geographical exposures. Our portfolios are generally constructed with little reference to index weights but we are aware of the Benchmark composition. To this end portfolio performance may vary materially from the index. In constructing portfolio weights we also consider market cap and liquidity risk.
  5. Review and risk management ~ we regularly review our positions driven by the fact that things are constantly changing and that what people say and do are often different. Review is formally carried out through regular risk management, company and research meetings.

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