ellen adams - 36 year old recipe for humble pie

8/21/2019 Ellen Adams - 36 Year Old Recipe for Humble Pie

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My 36-Year-Old Recipe for

Ellen Adams, Portfolio ManagerDaruma Capital Management - Long/Short Strategy


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Mistakes are the

ortals to discoveryJames Joyce


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Mr. Market is Merciless

Youd think most investment firms would be filled with

Mistakes are served up regularly Being correct 65% of the time makes you a legendar

manager

mistake-analyzing zealots


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Mistake Analyzing Zealots? Hardl

They hire the smartest people They pick the best stocks They have a seemingly flawless process

Everyones pitch books sound like an episode of


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My Background

Ellen Adams

I have no problem sharing. Ive been making mistakes for over 36 years

CastleRock Management: 1998 2011

Chancellor LGT: 1992 1997

Neuberger Berman: 1987 1991

Scudder, Stevens & Clark: 1977 1982

Daruma Capital Management: 2012 2014

Omega Advisors: 1992

Citicorp Investment Management: 1983 1987


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Mental Filing System for Lessons Lea

Name Proliferation Kil

Execution is as Impor

Knowing What Youre

Behavioral Dysfunctio


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Name Proliferation Kills


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Pitfalls of Position ProliferationLack of Conviction


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0

10

20

30

40

50

Pitfalls of Position ProliferationLack of Conviction

Tyco

Ticker: TYC Period: 2001- Purchased: M

$34

Fast forward Up +35%

Fast forward

Down -66

12/8/2000 - 12/30/2002

Price

($)


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Pitfalls of Position ProliferationGreed-Induced Name Creep


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0

20

40

60

80

100

120

Pitfalls of Position ProliferationGreed-Induced Name Creep

Equinix + Savvis

Tic

Ow

Re

Tic Ow

Re

20

30

40

50

60

12/8/2006 - 12/30/20075/9/2003 - 12/30/2007

Price

($)

EQIX SVVS

Price

($)


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Pitfalls of Position ProliferationDreaded Trading Idea


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Pitfalls of Position ProliferationDreaded Trading Idea

Tenet Healthcare

Ticker: TH Period: 2 Scenario

Up +3

Controver Down Contin

0

50

100

150

200

250

12/10/2001 - 9/30/2003

Price

($)


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Pitfalls of Position Proliferation


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Ticker: BSC Rewind to: Dec

Return Snapsho Down -25% o

Ignorance

Bear Stearns

Pitfalls of Position Proliferation


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Benefits of Concentration

Eliminates invest first, investigate later syndrome No deadwoodevery stock counts Mindset is never to get back to even Focused on gestation period Early is the same as being wrong

Work the capital hard


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Time

Horizon

Return

Execution as a Long Term Investo


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Fast

Retu

9/9/2005 - 12/30/2006

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30

35GLW

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60WFR (now SUNE)

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90EQIX

0

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80NIHD


Rewin

Return

G W E N P


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The securities listed on this page and the corresponding prices should not be considered recommendations to buy or sell any secuany of them were or will be purchased for the fund at the price shown, or at any price, or that they have been or will be profitable

based on our opinions, beliefs and expectations about the future; subsequent events may impact whether those come to pas



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Rare that trims at 6 month target lead to opportunity cost Manages net exposure Lowers the colatility Allocates capital to best risk/reward positions Avoid stocks with unclear 2 year merit Avoid stocks with less than our targeted 50% return potential

Benefits of a Price Target Disciplin


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DisciplineKnow Yourself

What are my strengths as an investor?

What are my weaknesses?


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Macro Overlays


Force you to put on your

macro-investing hat


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Index Options

Expensive insurance


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ETFs

Psychological crutch


Retail ETF

Stock Weight

Wal-Mart Stores 10.9

Amazon.com 9.6

Home Depot 7.4

CVS Caremark 7.1

Walgreen 5.1

Costco Wholesale 5.1Lowes Cos 4.9

Target 4.6

TJX Cos 4.5

McKesson 4.3

Total 64


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Futures

Index Options

ETFs


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PSYCHOLOGY 101


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Behavioral DysfunctionHubris


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Behavioral DysfunctionHubris

MEMC Electronics

Ticker: WFR (now S Period: 2003-2008 Purchased: May 0

Return Profile

Up 1200% by Factory fired Pricing collaps

0

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50

60

70

80

90

100

5/9/2003 - 12/30/2008

WFR (now SUNE)

Price

($)

B h i l D f ti


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Assignment of Credit

Behavioral Dysfunction

B h i l D f ti


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Behavioral DysfunctionAssignment of Credit

Oil Analyst

Insert

image

Industry: Oil Period: Spring 10 Exposure: 18% Goal

Reduce exposure grea

Rationale Take profits Worried about global g

Execution

Fails due to misaligned



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You Cant Kiss All the Boys/GirlsBehavioral Dysfunction

B h i l D f ti


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Behavioral DysfunctionWorking Well With Others

Ask the Analyst

B h i l D f ti


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Shame as a personnel management tool

Working Well With Others

Al T ki th R i


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Always Tweaking the Recipe


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Keep In Touch.

80 Field Point Road,Second Floor

Greenwich, CT 06830

203-489-5970

ADDRESS

Phone

Website:www.darumact.com

www.darumanyc.c

Lets

Ellen Adams, Portfolio ManagerLong/short SDaruma Capital Management, LLCWhere Every Stock Counts

ellen adams - 36 year old recipe for humble pie

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