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.
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.
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%