Tuesday, November 2, 2010

Marquette Finance Students Visit Daruma Asset Management

During their visit to New York during fall break, the finance students traveling with Dr. Krause, AIM program director, had an opportunity to visit Daruma Asset Management.  Dr. Krause said, "Daruma might be one of the best performing investment companies you've never heard about. Founded in 1995, they invest in a high-conviction portfolio of small-cap stocks. They are 100% employee-owned and manage funds for public and corporate pension plans, endowments, foundations and individuals. Their performance has been excellent."

Continuing to talk about Daruma, Dr. Krause said, "They practice pure active equity management by owning only their most compelling ideas - and holding for the long-term. They buy stocks with the potential to go up 50% or more over the next 24 months. And their strategy has resulted in outstanding long-term performance with an average annual portfolio turnover of about 40%."

"Their small-cap composite performance (net of fees) on an annualized basis since inception (7/28/95 to 09/30/10) has been amazing. They have earned 12.6% compared to 6.9% for the Russell 2000 Index and 6.7% for the S&P 500. The table below shows the annual returns versus the R2K," Krause commented.

"The visit to Daruma is one of the highlights of our NYC trip," Krause stated. "The students gain a good appreciation of deep, careful fundamental analysis. Daruma’s small-cap style of investing is a good model for the students to evaluate - by paying attention to valuation and developing a thorough understanding of the company - they are able to add stocks that beat the Russell 2000 with less overall risk. Mariko Gordon and Patty Clarkson laid out the investment process for the students, which involves:
  • Systematically generating new ideas
  • Understanding the target company's history
  • Carefully evaluating future outcomes
  • Developing a clear investment thesis
  • Monitoring the holdings closely
  • Establishing a clear sell strategy with price targets and an eye to new opportunities"
Mariko Gordon
Krause concluded, "Visiting Daruma during our view trip is a nice change of pace. Because we visit many bulge bracket investment banks, it is good for the students to see that it is possible to generate superior performance in a less stressful environment. Everyone at Daruma meets with the students in small groups to discuss their role in the company - and we end up with a great appreciation for what it is like to be a part of a firm with an open, caring culture. We are thankful for the opportunity to visit with Daruma....it's a great experience. And we'd like to thank Mariko, Patty, Neal, Steve, Mark, and everyone who took the time to talk with our students."

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