The investment process at Canso is focused on bottom up, fundamental research and security selection. Cheap investments are not popular and the buyer must do independent research to find undervalued securities.
Our prime focus is on our internal credit research; we do not rely on external research and credit rating agencies. With our large staff of credit professionals we believe we have greater research resources than most other investment managers or Canadian investment dealers. We conduct extensive research on issuers before making an investment and we continue to update our research on an ongoing basis for each issue in the portfolio.
The investment process begins with a thorough fundamental review of the issuer of a security. An internal quality rating is then assigned to the issuer. At this point, the merits of the particular financial security are examined with particular regard to the structure and ranking of the security. Once this is done, the future cash flow stream is identified and the risks associated with it are determined. Extensive fundamental analysis is used to identify the credit risk of an issuer. At Canso, our credit analysis is thorough and objective and is independent of the published ratings for the security. Before any security is purchased, the issuer is fully analyzed with respect to financial strength, management capability, and business environment. In addition to analyzing the financial strength of the issuer, the terms and conditions of the security (including covenant package, priority in a default ability to incur additional debt and make dividend payments) are assessed. If we are comfortable with both the issuer and the security, a risk/return profile is determined.
We keep extensive files on all issues, whether we participate in them or not. As new information becomes available this allows us to move quickly if an opportunity presents itself.
It is easy to buy a bad investment at a low price or securities of an excellent company at very expensive prices. It is very difficult to find a good investment at a reasonable price, which is what we constantly endeavour to do.