Risk becomes an asset when there is an overwhelming discount due to uncertainty.

In taking a page from academia, we believe that a sound investment philosophy should begin by making certain assumptions or postulates about the market, and then seek to derive logical conclusions that follow these assumptions.

In describing the Cambiar philosophy, we begin with the primary observation that the capital markets are relatively efficient over the long term, but prone to bouts of myopia and excess over shorter-term time periods.  Thus, the higher the degree of inefficiency within a certain market, the wider the dispersion of returns, and the more opportunity for an active manager like Cambiar to add value. 

As investors, we attempt to identify investment opportunities with attractive risk/return profiles – where the probability for loss of capital is modest, while the potential for outsized return is high.  Such scenarios are the result of valuation sensitivity at the point of purchase, as well as a non-consensus assessment of the true economic value of the company over a forward 1-2 year timeframe.  While not pure contrarians, we are willing to look at situations that are temporarily out of sync with the aggregate market’s current interests if we believe the issues causing the current valuation compression are transitory in nature. 

The search for asymmetric risk-return opportunities, as illustrated in the following graph, is the result of Cambiar’s intensive, in-house research process.

 

Another hallmark of the Cambiar philosophy is portfolio concentration.  The preference to manage a more focused portfolio of best ideas is primarily a by-product of our high hurdle rate, which is mandatory for stocks entering the portfolio.  We believe that managing a more concentrated portfolio of high-conviction holdings is the best way to generate excess returns for our clients.

This disciplined investment approach has been in place at Cambiar since 1973, and is consistently applied in all of our product offerings.