Maran Capital 2018Q3 Investor Letter: Clarus Corp, Turning Point Brands

Dan Roller’s Maran Capital published its investor letter for the third quarter of 2018. The fund generated net returns of 17.3% through the September outperforming the S&P 500 index by about 7 percentage points. In 2017 Dan Roller was able to deliver net returns of 23.9%. Maran Capital is mostly a long fund that invests in tiny but promising stocks. Its top 5 stock holdings are Clarus Corp (CLAR), Biglari Holdings (BH), Atento (ATTO), Scheid Vineards (SVIN), and Turning Point Brands (TPB). One of the main reasons behind Maran Capital’s strong 2018 performance is Turning Point Brands (NYSE:TPB). Roller said the following about this stock at the beginning of this year:

“Sometimes smaller-cap and less liquid stocks behave in unexpected ways (which is part of their appeal to me – one seller wanting to exit a position can trump fundamentals in the short term, creating opportunities). This seemed to be the case with TPB following its 3Q earnings release. I believed the results, including the initiation of a dividend, were positive. Despite this, the stock sold off in the days following the release of results, to a low of ~$15.50/sh (perhaps one seller just wanted out). Regardless of the cause of the weakness, I took advantage, and added to the position during this period. Again, this is somewhat illiquid, so any subsequent strength into year-end could easily be attributed to “one buyer wanting to get in.” Short-term aberrations in either direction aside, I believe that TPB increased in value over the course of 2017, and is likely to continue to compound at acceptable rates over the long term. As a reminder, my 2020 price target range is $30-40/sh.”

You can download a copy of Maran Capital’s investor letter below. We will share Maran Capital’s views about Clarus Corp (CLAR) and some interesting sections from this letter below:

“Market volatility has picked up again over the past few weeks.  Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more.  Uncertainty abounds.  But doesn’t it always?  I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it.

I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach.  I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value.


…During the third quarter, I had the chance to listen to Howard Marks, chairman of Oaktree Capital, speak about his most recent book, Mastering the Market Cycle.  In addition to sharing his wisdom on a wide range of topics, he said that he thinks we are in the eighth inning of the current cycle (although he hedged a bit: “you never know how many innings there are in the game”).  He noted the following signs are present: high optimism, greed, jealousy over the investment gains of your peers/friends, among other signs of generally positive investor psychology.

I don’t disagree with Marks, but importantly, we aren’t forced to own the whole market.  Our fund is invested in a very small subset of companies in the market for stocks, and not in the “stock market” as defined by any broad index.  Each sector and indeed each stock may have its own cycle.  Some stocks and sectors are completely out of favor right now, even as the cycle as a whole may be closer to the peak.

For example, while the market, at least as defined by the S&P 500, is only off its all-time highs by about 5%, the following ETFs are at their 52 week lows: Basic Materials; Autos; Timber/Lumber; Homebuilders/Building Products; China; Hong Kong; and Europe (as a whole, as well as each of the following individual countries: Italy, Spain, Germany, Sweden, France, Belgium, UK, and Ireland).

The S&P 500 would have to fall about 9% to join the above list of ETFs at 52-week lows (imagine the panic; people seem concerned enough about the current decline already). I believe that by focusing on our off-the-beaten-path hunting ground, and selecting a small handful of companies from the bottom up that we would like to own, allows me to mostly ignore what the entire market is doing, and should allow me to protect and compound capital while limiting the fund’s correlation to the broader market.

Our largest position, Clarus, performed well over the summer, on the heels of positive operating momentum coupled with a Dutch Tender by the company to, essentially, repurchase every share they could get their hands on at $8.  Yet despite the recent appreciation (and the fact that the stock has doubled over the last three or so years), I am sitting on my hands.  In this case, I still think it is a “three year double” from recent prices.  If things continue to go well, perhaps in three years it will be a $20+ stock, with a pathway to $40 over the ensuing three years.  If I’m close to right, continued patience, even in the face of future volatility, will be a virtue.”

You can download a copy of the letter here: Maran Partners Fund LP 2018 3Q Letter

Disclosure: None. This article was originally published on Insider Monkey.