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.