Investment Philosophy and Process
Constitution Investment Management Corporation's (CIMCO) investment philosophy is based on the value oriented investment principles set out by Benjamin Graham & David Dodd during the 1930's. Value investing seeks to identify discrepancies between stock market prices and the underlying values of businesses. Investments are made when shares of companies can be purchased at a discount from what Graham called their intrinsic value. Purchasing shares at a discount adheres to the tenet that the price at which you buy a security determines your return, and that once invested at the correct price, longer term holdings allow for the power of compounding to take full effect. Ideally we are looking to acquire an asset for significantly less than the asset's calculated worth, for example, fifty to sixty cents on the dollar. However much depends upon the prevailing market conditions.
CIMCO controls risk through diversification where possible however it should be noted that value investing tends to reduce risk automatically, as an identified gap between price and value creates a margin of safety, a central concept of Graham's work.
The approach for analyzing and determining intrinsic value is a fundamental one focusing on
the financial statements of a potential investment candidate. Intrinsic values and/or relative values are determined to assess whether an investment is attractive at the going market price. Further an assessment of the economics of the business and its financial standing will also contribute to the decision to purchase. The same process is used to establish sell, or short, disciplines. Screening techniques are used to reduce the investment universe into a select group of companies, after which in-depth analysis takes place. In general we tend to favor investing in companies that have an established market presence.
In a broader sense, the key attributes to practicing value investing are patience, discipline and the ability to measure, or quantify, a company's true worth. A certain degree of creativity and/or flexibility is also required to generate new investment ideas.
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