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Our Investment Process


The investment strategies at Millrace Asset Group are driven by thoughtful fundamental analysis of individual companies. The focus of our bottom-up analysis drives us to answer key questions about the companies we are considering for investment, how other investors perceive them, and whether we have a differentiated point of view that is actionable. Experience is critically important as it provides the perspective needed for a research analyst to ask the right question in the right way at the right time of the right person.

Search   Qualify
Manage   Construct

The Millrace investment team seeks to identify powerful, bold investment opportunities that are most typically found among smaller, innovative companies within the Technology, Business Services, Health Care, Consumer, and Industrial sectors. Such smaller companies generally receive less investor attention and provide the best opportunity for original research to be rewarded.

The search for prospective new investment ideas is continual and involves all four members of the team. New ideas come from meetings with management teams, trade checks with customers/competitors/suppliers, company announcements, earnings reports, new product introductions, and many other sources. The process is deliberately creative and wide-ranging, aided materially by the deep company knowledge that comes with having over 100 years cumulative team experience and engaging with management teams in thousands of company meetings.


Millrace’s research—before and after the initial purchase of a stock—is driven to answer these two questions:

  • Is there a catalyst that will change how others perceive the company’s business value?
  • Do I have an investment insight that can be exploited?

Answers to these questions come from extensive interaction with company management teams, a thorough evaluation of the company's business model and operating/competitive environment, analysis of the financial statements, and trade checks with customers/competitors/suppliers. If the answers are affirmative, they lead to development of an investment thesis, future earnings estimates, analysis of the stock valuation, and development of a price target for the stock. While the research process is rigorous, the approval process – aided by the ongoing discussion of research work among the team members – is responsive to a fast-moving market.


Individual investment ideas represent bold investment opportunities and are only included in client portfolios after our thorough, independent research is completed. Nevertheless, we respect that we can’t know everything about a particular company, what affects its stock price, and what will happen in the future. Having the humility to accept that you may be wrong is critical to controlling emotions and minimizing losses. Portfolios, therefore, are well diversified by the number of holdings, sector exposure, and type of business model. With a large universe of potential companies to select from, there are always plenty of exciting opportunities to seize upon, so there is no need to add risk with an overly concentrated portfolio.


The team member who performed the research and recommended each portfolio holding is responsible for its ongoing management. This includes updating earnings expectations and price targets on a real-time basis while making decisions to add, trim, or sell the position. Every holding is assigned both a target price and a stop loss. As stocks reach our price targets, we begin to reduce exposure in a disciplined manner to capture gains, often even if we are convinced the target price should be raised due to improving company prospects. The stop losses are designed to add an additional discipline in one of two ways. First, when stocks decline from our original cost, the stop loss prompts action that limits further loss when our investment thesis is not working as expected. This allows capital to return to the portfolio to be used for more productive purposes. Second, for winners in the portfolio, a rolling stop loss relative to the stock’s highest price during our holding period helps ensure the capture of unrealized gains by avoiding the senseless round trip in price—something that can happen all too frequently if good controls aren't in place. Our stop loss disciplines provide a straightforward mechanism that is flexible enough to deal with normal market volatility while holding the team members accountable for results.