Wealth Management

INVESTMENT PORTFOLIO PERFORMANCE AND METHODOLOGY

Cortland Associates is a boutique investment management firm. We are dedicated to serving our clients with a diversified, yet focused number of thoroughly researched equity investments, varying from 15 to 25 stocks during any given period of time. Select debt instruments are also employed, either when a client requires an income flow, or when valuations of these debt instruments offer a compelling internal return compared to equity valuations.

Our constant objective is to optimize, rather than maximize, investment returns over time. Our perspective in investments is always risk-averse and value-oriented. The investment process is based not merely on statistics (e.g., low P/E ratios, low price to book value, etc.), although these statistics are, of course, utilized. Our investment methodology is broader and deeper. We analyze stocks as if we were actually buying the company. Therefore, we are focused on our internal return of the business itself based on the price we paid and based on its subsequent stock price movements. In other words, we employ a real-world ownership approach. By this, we mean our goal is always to understand each business and its industry in terms of current financial returns, opportunities, and vulnerabilities. We endeavor to understand the internal returns of these businesses in terms of the components of profit margins, returns on capital, and free cash flow. Most importantly, we observe how well a management redeploys capital for future growth or other strategic goals. In short, our investment methodology is quite intensive and dynamic in its approach.

On the most basic level, when we own a stock, we own a fractional ownership of a company. The increase in value of our portfolios is primarily driven by increases in earnings and cash flows of those companies, though sometimes better asset rationalization also occurs. We believe this is the most comprehensive way for growth to be achieved and sustained in any investment.

INVESTMENT PERFORMANCE

Cortland is pleased to provide our independently verified performance results upon request.

When examining historical performance data of any investment management firm, one should note that it is extremely rare for the long-term results to have been achieved by those currently managing the assets today. Cortland believes this should be a critical factor in assessing any management’s capabilities. Analytical continuity is a constant at Cortland.

INVESTMENT METHODOLOGY

Cortland’s investment ideas are derived from two principal resources: value-based investment management based on value-added research and non-Wall Street industry contacts. Basic financial statistics are evaluated, such as stock price in relation to cash flow, book value, as well as 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 for making an investment decision, though on Wall Street, they are frequently used as the sole criteria.

At Cortland, we need to better understand the nature of the business: what strategic or operational advantages exist. Indeed, we need to understand the durability of those advantages. We are interested in a company’s earnings per share but are focused much more heavily on return invested capital, free cash flow, and management’s intelligent ability to redeploy capital in a manner that will ensure continued profitability and sustainable growth. These are the elements that enhance value creation over the years. In an investment, our focus is the company’s earning power, not over the next quarter, but rather over a three- to five-year period.

COMPANY VISITS

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 the 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 the 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 is particularly interested in the financial controls and major variables that could affect profitability.

INVESTMENT MONITORING

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 valuations to ensure that these factors are evolving as anticipated. Over half of Cortland’s management time is re-analyzing what we already own.

When we make a new investment, it is with the expectation of being owners for up to 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 remain in investments for eight to ten years, and in some instances, for more than a decade. Cortland’s focus is a three- to five-year timeframe. The perspective and questions that timeframe necessitates gives us considerable intellectual advantage in assessing the true merits of an investment.

SELL DISCIPLINE

A strong investment process requires admitting when you are wrong as quickly as possible. However, what it requires most is doing considerable analysis in the first place before taking action. 

Investments in all companies are constantly reviewed and become a candidate for full or partial sale based upon one of two factors. First, a sale of an investment will occur if there is evidence of deterioration in the fundamentals of a company or its industry. Secondly, action is taken if the common stock meets or exceeds our internally generated valuation level.