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"