CCI's analysts winnow down
reams of information for each investment idea to 6-10 key
factors, which are our barometers for an individual company's
business performance. The leading indicators are identified
from four areas affecting a given company - macro-economic,
secular trends, industry dynamics and, most importantly,
company specific factors. Several of the key factors may be
shared amongst companies in a specific industry, but company
specific performance will determine which investment is
included in the portfolio.
Defining the elements of
information that the analysts identify as the key leading
indicators is critical, but the building of consensus
expectations for the leading indicators is equally important.
CCI's analysts are trained to gauge expectations through
contact with company management, competitors and suppliers,
Wall Street analysts and the trade press/internet. The
analysts build a consensus expectation for each leading
indicator by asking each source what is expected. This
information is placed in an electronic spreadsheet and stored
in our firm's research database.
For any particular set of
expectations, there are interim events or pieces of evidence
that will either reinforce those expectations or contradict
them. Our analysts review relevant information and compare it
to the set of expectations. When the information is better
than expected, this is a buy candidate and when the
information is equal or less than expected we sell or avoid if
we do not own it. Our buy and sell criteria is symmetrical.
We work to construct a portfolio of
companies with Positive Momentum & Positive
Surprise. The portfolio is diversified across investment
themes (groups of stock sharing a common driver) and subject
to client guidelines.
The process is continuous and we reset expectations based
on new information and changes within the business
fundamentals of each holding.