“Investing is most intelligent when it is most business-like.“
2. Investment Philosophy
The key to consistent success is to have a sound and rigorous intellectual framework for making investment philosophy, which for CDAM can be aptly summed up as “Intelligently Eclectic.” What is this?
2.1. Value Investing
CDAM’s objective is to seek capital appreciation while reducing the margin of error when investing. This is achieved with a rigorous, innovative and well-defined value investing approach. This ensures that CDAM’s main guiding principle of having a margin of safety is adhered to.
CDAM’s stock selections are based on divergences between market prices and the underlying intrinsic values of the companies. This way a margin of safety is built in. The wider the divergence, the higher the margin of safety.
Guided by Benjamin Graham’s famous counsel “Investing is most intelligent when it is most business-like”, the vital goal is to determine the company’s value and what is driving the valuation. Various valuation methods are used to determine a company’s intrinsic value. In addition, key qualitative factors such as management quality and economics of the business are also taken into consideration.
A value investor will not be easily influenced by market trends and conditions. For instance, during a market downturn, the investment decision of a value investor will not be affected by investor’s behavioral decision to sell down their stocks. It is neither a one-decision approach nor is it a buy-and-hold strategy.
Value investing has demonstrated itself as a superior investment approach over long periods of time.
2.2. Choice of Country/Market
Our research tells us that different countries/markets with different economic, corporate and political structures demand different investment approaches. Our matching of investment approach with the country/market is an essential part of our investing philosophy.
2.3. Top down analysis
The top-down analysis starts with a broad analysis of the global economy, paying close attention to the major foreign economies before proceeding to analyse the Malaysian economy in detail. CDAM’s objective is to obtain a sound framework that allows it to have a clear perspective of how economies, sentiments and markets interact and how this interaction influences the investment of CDAM. In this respect, CDAM emphasises the following three (3) fundamentals drivers for its top-down approach:
- Economic Growth;
- Inflation & Interest Rates; and
- Corporate Earnings.
2.4. The End Result – an “Intelligently Eclectic” investment philosophy
CDAM’s distinctive value approach is developed, amongst others, from Graham & Dodd, Warren Buffett, price-earnings ratio, discounted cash flow, economic analysis and cycles and much more. No computers, although we use them extensively, or mechanical system or formula can replace human judgement.
We study the various investment approaches and continuously ask how they apply, given the political and economical structures and conditions. Constant innovations and adaptations are made to suit the unique structure and characteristics of the equity markets. Equipped with this thorough research, CDAM takes on an “Intelligently Eclectic” investment philosophy. CDAM believes that this will provide it with an unsurpassed edge in identifying investment opportunities for our clients.