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:

How not to copycat the index

How not to inflict mortal wounds on the portfolio

The resulting portfolio combines strong return potential with risk control not dependent upon index-hugging. In our longest-running product, the small-cap strategy portfolio turnover has averaged 40% annually since inception; cash typically runs between 3% and 5%, and our top ten positions range between 35% and 40% of the portfolio.

A portfolio is more than just an assortment of stock picks; it becomes an ecosystem — an environment where every organism interacts with and is dependent upon every other organism. The health of the portfolio therefore must be monitored systematically, assessing risks not only at the individual stock level, but also aggregated across the entire portfolio. We always need to make sure that the portfolio has the right mix of new ideas with developing ideas as well as the right balance of risk with opportunity.

The 12-stock rule

Portfolios / Rules

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