Our Philosophy
Investment philosophy
Cannae Capital Partners Limited ("Cannae") believes that the market is driven by emotions and herding instincts. In particular, most investors are drawn to the "glamour stocks" which are often good companies but not necessarily good investments because their popularity can mean they are overpriced. On the other side of the coin are bargain hunters who invest in companies that appear cheap on standard valuation metrics but are of exceedingly low quality and are not necessarily undervalued. There are also stocks that are undervalued: emotions can cause investors to fall out of love with quality companies for reasons of a short term nature, and the herding mentality can mean excellent companies are insufficiently appreciated when relatively unknown. These are inefficiencies which can be exploited over time to offer superior returns to talented stockpickers.
Although there is academic debate surrounding how efficient the markets are, we believe that the sustained outperformance of benchmarks by many celebrated investors (such as Warren Buffett) is not just within statistical expectations as some would suggest.
Investment style
While most members of the team lean towards a value style of investing, Cannae is largely style neutral. We adopt an approach of thoroughly assessing all investment opportunities on their merits using a "bottom up" process. We do not believe that stocks need to appear cheap relative to the market to be undervalued: price is meaningless without understanding the quality of the business's franchise, earnings capability and assets.
In particular, the team looks for companies that it assesses as having strong cash generating ability. This seeks to ensure that we are not influenced by potentially misleading accounting profits, and these companies normally have strong balance sheets. Companies in which we invest should also ideally earn strong returns on the capital employed in the business. Poor returns suggest shareholder money (owner capital) would have been better deployed elsewhere.
Investment process flow
