Risk Management


Virtually every investment management firm says that it avoids risk. Few firms can state exactly how they mitigate risk. At Cortland, we can articulate how this occurs:

Risk of Insufficient Analysis: Cortland thoroughly analyzes each investment well before an investment is made and utilizes multiple information sources to avoid blind spots. Unless one does thorough analysis, how does one know where risks can occur?

Risk in Stock Valuation Level: Cortland’s focus is always on the internal return on the investment and is calculated on a three- to five-year internal basis. Most importantly, specific focus is directed to management’s ability to redeploy free cash flow strategically and intelligently. These determinations are compared to data on the average S&P 500 stock and the five-year U.S. Treasury (used as a “risk free” investment return). Chosen investments must be far superior to these benchmarks.

Risk of Deteriorating Corporate Profitability: Cortland examines the internal business components that drive profitability, whether that is on a gross operating or pretax margin basis. These measurements must appear relatively stable, or preferably improving, thereby limiting a major element of internal risk.

Other Direct Business Operating Risks: Cortland assesses internal risks such as debt leverage, single product reliance, product obsolescence, or growing competition.

Ancillary Risks: Cortland questions the propensity for lawsuits, EPA liabilities, underfunded pension liabilities, or loose accounting standards. 

Risk of Excessive Optimism: Cortland spends considerably more time trying to disprove an investment, rather than trying to contemplate the upside potential. This makes us sensitive to where problems exist or might occur. It also obviates any propensity to overpay for ownership.