Greenhaven Road Capital Partners Fund, L.P.’s Q2 2019 Investor Letter

Connecticut-based investment management firm, Greenhaven Road Capital Partners Fund, L.P., released its Investor Letter for the Second Quarter of 2019 – a copy of which can be downloaded below. The fund is known for focusing on finding hidden gems that can potentially outperform the diversified blue-chip portfolios. Its manager, Scott Miller, started investing his own portfolio in public equities in 2000 after graduating from Stanford Business School. Miller’s expertise in security analysis,  for-profit education, and private equities influenced the firm’s investing strategies. In addition to managing Greenhaven, he also co-founded an education company that generated $75 million in revenue and worked at a long/short hedge fund company.

In its most recent Investor Letter, Greenhaven’s Fund announced a -4% return during the second quarter, which brings a year-to-date (YTD) return of +12.5%. It also named its Top 5 Holdings for the quarter: KKR & Co. (KKR), Digital Turbine (APPS), PAR Technology (PAR), SharpSpring (SHSP), and ETSY (ETSY).

“Dear Fellow Investors,

Greenhaven’s Fund returned approximately -4% in the second quarter, bringing the YTD gains to approximately +12.5%. Investors, please check your statements as individual returns will vary by class and date of investment. In brief, this was a quarter where our returns zigged when the market zagged. As you know, we are not going to have the chance to beat the market over the long term by being the market. To be successful, I believe we must invest in a concentrated portfolio that includes off-the-beaten-path companies and accept some short-term volatility from time to time. A divergence from the indices is not a surprise, as we are not imitating them. Our current portfolio consists of 14 companies that are greater than 2% positions, only one of which is in the S&P 500 and half of which are outside of the Russell 2000. Further, by my estimate, more than one-third of our portfolio companies do not have any “real” analyst coverage.

Nobody is making me buy smaller, off-the-beaten-path companies, but I have. Remember, I have the majority of my liquid net worth invested in the fund, right alongside your capital. Why are we playing on the fringes? The simple answer is that this is where I currently see potential to earn the best risk-adjusted returns. In the market at large, recent returns have been driven primarily by multiple expansion within certain sectors such as large, defensive, low-volatility companies and very high growth SAAS (software as a service) companies. Analysts are twisting themselves into pretzels to justify companies selling at 15X, 20X or even 30X sales. One interesting example is Lightspeed (TSX:LSPD), a Canadian point-of-sale system that competes with one of our holdings, PAR Technology (PAR). In 2018, Lightspeed’s revenue grew 36% to $70M, or a bit more than $90M Canadian dollars (CAD). The company went public a few months later in March. What would be a generous valuation for this promising company? Would it surprise you to learn that, post-IPO, the company was worth in excess of $1.5B CAD? Would it surprise you to learn that Lightspeed has nearly doubled in value in the last five months since the IPO? PAR Technologies has not been the beneficiary of this level of multiple expansion. Yet, given PAR’s robust sales pipeline, new payments business, defense business that they can sell off to fund growth, and complementary hardware business, I would rather own PAR than LSPD trading at 25X+ sales. Currently, Lightspeed’s far “cleaner” growth story is the flavor of the day. Time will tell which is the better investment.

When I go through our portfolio, I see a group of companies that have the potential to double and triple in value. Of course, I can be wrong. Mispricings can persist for very long periods of time and often become more pronounced in the case of a large market selloff. That said, I don’t want to confuse “not working in the short term” with “cannot work.” I think we have significant “juice” in the portfolio and are well-positioned for the future.”

You can download a copy of Greenhaven Road Capital Partners Fund L.P.’s Q2 2019 Investor Letter here:

Greenhaven Road Capital Partners Fund L.P.’s Q2 2019 Investor Letter

You can also see the list of our 2019 Q2 investor letters and download them on this page.