Thrift, fearlessness, resilience, hard work, intellectual curiosity and an ability to take and avoid risk are in my blood — a perfect pedigree for a money manager. Given my family history, combining entrepreneurship and portfolio management by founding Daruma in 1995 wasn’t as far-fetched as it might seem for a Princeton `83 comparative literature major. My mother’s parents left Okinawa to work on a Hawaiian plantation. After buying their way out of indentured servitude through thrift and backbreaking work, they bought a farm and raised pigs.
My father’s father worked his way up from a messenger boy to partner in a brokerage firm and earned a law degree and a seat on the New York Stock Exchange, with only the benefit of an eighth-grade education (you could do that back then). He was a fierce autodidact and a wicked bridge player; he survived the 1929 stock market crash because he didn’t believe in leverage. My two favorite photos of him are one as a teen-aged hayseed in ill-fitting, coarse clothes, and the other as a middle-aged fat cat, cigar in hand. My parents were serial entrepreneurs, so I spent my childhood getting a firsthand view of business.
I first broke into the buy side in 1986, as an apprentice to a portfolio manager at Manning & Napier in New York. I spent months calculating free cash flow, tracking working capital changes, and taking every night course offered in finance to fill the technical gaps left by my humanities education. When my boss decamped to the west coast, I joined Royce & Associates. Chuck Royce is a small-cap legend who gave up his go-go growth ways and converted to value investing after the late sixties bull market collapsed. Chuck gave me my first chance to manage a portfolio, and taught me how best to cross-examine management. I will never forget watching him stand calmly by the trader’s desk buying stocks hand over fist in the crash of `87.
While Chuck owned hundreds of stocks, I preferred the thrill of the hunt that comes from being a stockpicker and watching over a small number of positions. I left Royce in 1990 to join Valenzuela Capital Management, a start-up money management firm that had been launched with one $2 million account. As a partner and research director there, I oversaw a portfolio of no more than 35 stocks. Over five years, the firm grew to $1 billion in assets, buoyed by good performance.
In 1995 I started Daruma with zero assets under management, but with a clear goal: to build an investment firm where the business of money management would never interfere with my calling as a portfolio manager. My role at Daruma is to ensure that we never become complacent, and that we always strive to enhance our investment process.
Past performance is not a guarantee of future results. Many factors affect performance, including changes in market conditions and interest rates, as well as other economic, political and financial developments. You should not assume that investment decisions we make in the future will be profitable or will equal the investment performance of the past.
The portfolio is actively managed, so holdings, sector weightings and other portfolio characteristics may have changed since the date shown. They should not be considered recommendations to buy or sell any security or of a particular allocation. You should not presume that any holding or allocation shown has been or will be profitable. The information in the Small-Cap and SMid-Cap commentaries supplements the related Composite Presentations available on our website (click here for the Equity Composite Presentation: Small-Cap, here for the Equity Composite Presentation: SMid-Cap).
The information in each commentary is current as of the date of the commentary, and may have changed by the time you read this. Daruma has obtained some of the information in this presentation from third-party sources we believe to be accurate. However, we cannot guarantee the accuracy of such information.
Statements in any commentary that were not historical facts at the date of that commentary reflect our opinions, beliefs or expectations as of that date. Subsequent events will have, or may yet impact whether they prove to be correct.
Charts included in any commentary are included to demonstrate certain information or conclusions. You should not make any investment decision relying only on these charts.
The appropriate comparison benchmark for the Small-Cap Equity strategy is the Russell 2000. The Russell 2000 includes approximately 2000 of the smallest U.S. common stocks based on a combination of their market cap and current membership in the Russell 3000. The Russell 2000 Value Index includes those Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values, while the Russell 2000 Growth Index includes those with higher price-to-value ratios and higher forecasted growth values.
The appropriate comparison benchmark for the SMid-Cap Equity strategy is the Russell 2500. The Russell 2500 includes approximately 2500 of the smallest U.S. common stocks based on a combination of their market cap and current membership in the Russell 3000. The Russell 2500 Value Index includes those Russell 2500 Index companies with lower price-to-book ratios and lower forecasted growth values, while the Russell 2500 Growth Index includes those with higher-price-to-value ratios and higher forecasted growth values.
The Small-Cap and SMid-Cap Equity strategies are concentrated strategies that are not managed to a benchmark, so there are material differences in characteristics, such as the number of holdings and sector and industry weightings. In addition, benchmark performance does not include any fees or expenses. Because of these differences, benchmarks should not be considered a completely accurate comparison.