Philosophy

Daruma’s investment approach is defined by certain key beliefs:

  • A concentrated portfolio compels truly active management.
  • In any market we can find 25 to 35 stocks with strong potential to outperform.
  • The best time to buy is not just when a stock offers good value, but when we can clearly define what will drive the price higher — in most cases better-than-expected sales, earnings or cash flow growth.

Process

Managing a portfolio where every stock counts means managing an investment process where every decision counts:

Step 1 – Screen Universe

Identify smid-cap and small-cap stocks that are undervalued and changing for the better.

Step 2 – Quantitative Analysis

Identify key drivers of past growth.

Step 3 – Qualitative Analysis

Identify key drivers of future growth.

Step 4 – Investment Thesis

Synthesize prior analysis into fundamental milestones.

Step 5 – Valuation

Define upside and downside price targets.

Step 6 – Weekly Review

Monitor and implement sell discipline in light of milestones, price targets, new opportunities and aggregate portfolio risk.

Portfolio Construction

Daruma invests within a clear set of rules about portfolio concentration and diversification, valuation and the sell discipline — and, most important, rules about paying attention and acting decisively when necessary.

Our Portfolios Do Not Mirror the Benchmarks

  • We own no more than 35 high-conviction holdings and no less than 25
  • Sector exposure is capped at the greater of 25% or two times the benchmark weight
  • A position starts at 2.2%, is capped at 6%, and in practice rarely gets above 5%