How we adapt when facts change

Stephen Groff's picture

We live in a highly dynamic world where technological forces only continue to accelerate the rate of change. This has important implications for both society at large as well as how we analyze and select investments for our clients. While it is nice to discuss examples of businesses where we spotted an important inflection point and everything worked out exactly as we hoped, today we will do the opposite and review a recent case where industry drivers have changed (and gone against us).

Understanding how the team works together to digest new information (both good and bad) is more insightful for our partners to judge our process, which is what you are buying when you invest with Cambridge.

An example is Kroger (KR), a position held in a number of Cambridge portfolios. Our team, particularly our consumer analyst Kam, has spent considerable time on the grocery space in Canada, the US and abroad. While we work hard to avoid companies or industries facing structural challenges, this needs to be considered alongside other factors, including the magnitude of the pressure, management capability, capital allocation effectiveness, valuations as well as other drivers. We have been shareholders in Kroger with the belief the business was attractively valued in light of their market position, scale advantage and historical track record of executing effectively against competitors (Wal-Mart, Aldi, traditional grocery peers, niche operators, etc.) through a number of cycles. While the business faces current and future challenges including a revamped Wal-Mart / Lidl, food deflation, Amazon and the online sales gradually increasing, we believed the pressures were manageable and Kroger would be able to compound shareholder value over time. Given what we viewed as attractive risk / reward at the time, the decision was made to invest.

Amazon’s acquisition of Whole Foods has accelerated both the timing and magnitude of a known risk. What did we do following the announcement?

  • We reviewed all available information including information from regularly scheduled meetings we recently had with both Amazon and Kroger and worked to assess the impact.
  • We then had a meeting with three portfolio managers, our financial, health care, consumer and technology analysts to discuss implications for Kroger as well as a number of other businesses.
  • We participated in a call with Kroger the business day following the deal.
  • Following this, our upside and downside scenarios were adjusted to take into account the new information and our updated thinking.
  • We then determined the best course of action and drove forward, as a team.

For compliance and competitive reasons, we will not be commenting on what adjustments we are making. We will, however, remain disciplined to our process, but also flexible with the willingness to adapt to new information.


“When the facts change, I change my mind. What do you do, sir?” 

                                         - John Maynard Keynes


Over the years while we have had a number of events work in our favour, this is one that did not. While every member of the team takes these events personally, we also use them to learn, reflect and continually refine and improve the process. It is this dynamic and adaptable process which we believe is critical to the long term success of Cambridge.


This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. This commentary may contain forward-looking statements about the fund, its future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.


Submitted by Reid Liske on

Amazon is changing the dynamics of many industries. Keep up the good work..

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