Cortland Associates is dedicated to a thorough, value-oriented approach to investing as a means of achieving superior investment results with a minimum degree of risk. This is best accomplished by investing in securities that have been thoroughly researched and meet a series of exacting performance standards.
Investment Idea Generation
Cortland Associates' investment ideas are derived from two principal sources: proprietary research and non-Wall Street industry contacts. Basic financial statistics are evaluated, such as stock price in relation to cash flow and book value, debt ratios, historical trends in gross, operating and pre-tax margins, returns on assets, and returns on equity. These statistical evaluations are critical; however, they are insufficient in and of themselves to making an investment decision. Indeed, on Wall Street, they are frequently the sole criteria. At Cortland, we need to better understand the nature of the business: what strategic or operational advantages exist. We need to understand the durability of those advantages, and not just earnings estimates, but much more importantly, how that capital will be redeployed. Fundamentally, Cortland makes investments in companies and their management. Our thinking is as business owners and investors.
A company will be reviewed and become a candidate for full or partial sale based upon one of two factors:
If after preliminary review, the company remains a candidate for investment, Cortland undertakes a thorough evaluation of the company's operations in order to understand a company as an operating entity. In-depth analysis must be predicated on the knowledge of products, markets, quality of management, research and development, and the tenor of competition. This requires visits to company facilities and interviews with management, employees, suppliers, and competitors. Cortland seeks to discover those specific business advantages resulting from superior merchandising, proprietary technological positions, unique manufacturing efficiencies, or favored niche positions. Cortland Associates is particularly interested in the financial controls and major variables that could affect profitability.
After an investment is made, Cortland maintains close contact with management, competitors, suppliers, and outside analysts. We regularly monitor pertinent industry and economic data. The goal of the continuous analysis and review is to critically monitor a company's operations, its industry's prospects, and its stock market valuation to ensure that these factors are evolving as anticipated. Over half of Cortland’s management time is reanalyzing what we already own. We make an investment as a company with the expectation of being owners for five years. Although it is rare, we sometimes own a company for less than a year, if we come to believe our original assessment was wrong. Frequently, we are in investments for eight to ten years, with a few for more than a decade.
Most investment management firms have a focus that is quite short – a quarter to a year. Our longer-term focus – and the questions that necessitates – gives us a considerable intellectual advantage in assessing the true merits of an investment.