Our investment techniques focus on default risk and the cash flows that support investment value.

We begin our analysis with a full review of the financial condition and operations of the issuer of a security. We draw upon the considerable shared experience of our portfolio managers and analysts to assess the credit of the issuer and to establish its prospective cash flows going forward. The security is then valued using our estimates of its recurring cash flows and a long-term discount rate determined by our rating of the issuer. Growth prospects are taken into account in the analysis, on a normalized basis.

The purchase decision is key. It is easy to buy a popular investment at a steep price or a poor investment cheaply. It is central to our philosophy to buy securities when they are out of favour and priced cheaply compared to their ongoing cash flows.

We prefer to buy and hold our investment for long periods of time. This does not mean that we are captive to our holdings. Just as we buy things cheaply, we sell overvalued securities with market prices well beyond our estimate of reasonable value.

A major part of our analysis focuses on the underlying financial health of a company. Companies do not go bankrupt because they are unpopular. They run out of cash.

Our portfolio managers and analysts at Canso are very experienced in banking and credit analysis. Before they decide on the upside for a stock, income trust, bond or any other type of security, they examine the downside. Liquidity, financial leverage, bank credit and operating efficiency are all examined with an emphasis on the risk of default. This determines the risk of an investment and how much portfolio capital to risk investing in it.