Invest boldly Manage risk wisely

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.  Millrace has the expertise and experience to consider companies that are too small, too controversial, or too complex for many other investors to consider…yet these often provide the best return potential while the investment risks others perceive are often far greater than the actual risks.

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 designed to analyze the growth opportunity in a prospective company, the prospective return potential given the current stock price, and the risks associated with making the investment.  Here’s a simplified diagram showing the process:

qualification process diagram

There is much discussion about the efficiency of the stock market.  Yet, particularly with smaller, less well-followed companies, a company’s fortunes can change quickly leaving less attentive investors to make judgments on old information.  Finding inefficiencies in how others perceive the growth potential, the stock valuation, and the risks—which are often overstated or understated because they are harder to quantify—provides an endless supply of rewarding investment opportunities in the large universe of smaller companies.


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 what will affect the price of a company’s stock 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 pursue, 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 loss alert. As stocks reach our price target, we reduce exposure in a disciplined manner to capture gains and reduce risk. The loss alerts are designed to add an additional discipline in one of two ways. First, when stocks decline from our original cost, the loss alert prompts action that mitigates further losses 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 loss alert relative to the stock’s highest price during our holding period (or lowest price for short positions) helps ensure the capture of unrealized gains by avoiding senseless and frustrating round trips in the stock's price—something that can happen all too frequently if good controls aren't in place. Our loss alert disciplines provide a straightforward mechanism that is flexible enough to deal with normal market volatility while holding team members accountable for results.