Invest boldly Manage risk wisely

Our Investment Philosophy

The Millrace Investment Philosophy addresses our fundamental beliefs about investing and our thoughts on how to structure our firm.

Invest Boldly/Manage Risk Wisely

We believe the key to compounding capital over time is to minimize drawdowns while investing in assets that grow in value.  The best way to do this is to own the stocks of companies with high growth rates and then carefully manage the associated risks in order to minimize losses.  We do this with a long/short portfolio structure and adherence to a disciplined risk management process.

Size is central both in the companies we focus on and the size of our own firm.

Smaller companies are less efficiently followed and valued than larger companies, and the return opportunity from timely discovery is significant.  While many small companies can become innovation and growth leaders, they’re also prone to business disruption, which creates volatility.  This volatility provides a constantly changing set of long and short opportunities.  With respect to Millrace, we set a limit to the firm’s AUM capacity because growth in small cap AUM beyond a certain point is counterproductive to returns.

Fundamental research and experience adds value.

Earnings growth, revenue growth, and margin expansion—these drive valuations and stock prices.  Fundamental research and experience are essential when dealing with companies where innovation and disruption are constant.

Empowering the investment team brings accountability to the investment process.

At Millrace, the investment team actively engages with each other, yet team members are empowered to act on their research convictions.  This means each person “owns” their decisions and each is individually accountable for their performance contribution.  In contrast, the group think and bureaucracy at many large firms frequently poisons timely investment ideas, frustrates experienced analysts, and causes them to gravitate to “safe” ideas.