Our investment philosophy
What drives share prices?
The foundation of our investment philosophy:
Fundamental Factors (rational):
Earnings and interest rates drive underlying business values over the long term. Good quality businesses grow their underlying value at higher rates than the stock market average and hence deliver superior long term performance.
Psychological Factors (irrational):
In the short term, investor's emotions can drive the share price by overreacting to good and or bad news. These emotional biases are often repeated.
Cadiz takes advantage of the markets short term pessimism by investing in good quality businesses that are experiencing temporary setbacks and are thus attractively priced.
We apply our investment process with patience, diligence and focus
We identify opportunities through bottom-up fundamental analysis.1. Know the business
- We invest in businesses that we have researched and therefore know well.
- We don’t invest in businesses with excessive financial leverage
- We don't invest in businesses where there are major concerns around management
- We appraise what the business is worth in a worst-case scenario
- We don’t overpay for an investment
- We don't over extend a position
- We limit the weight of any investment that we believe to have a higher risk
Know the investment case
We only invest if there is a margin of safety
All investments carry some degree of risk but at Cadiz we only invest if there is an adequate margin of safety built into our own valuations.
Buying good businesses with shareholder-oriented managers and low financial risk, when valuations are attractive.
Taking advantage of the “power of compounding” and “reversion to the mean”.
Exploiting behavioral biases that result in repeatable errors.
Thinking and acting like long-term business owners, in a market focused on the short-term.