You know that saying, “Don’t judge a book by its cover”? I was reminded of that adage when I met Martin Braun for the first time. As I walked into the colourless JC Clark offices, Martin greeted me with a somber hello, wearing jeans and a pressed shirt and sporting a beard. Martin walked me over to the room where we would hold our interview. Before we started our conversation, he opened a can of Dr Pepper and ripped open the wrapper of a granola bar. I don’t know many adults who drink Dr Pepper these days. Was this his lunch? Martin was cool as a cat, to the point that it almost seemed as though he had checked out of work. But again, don’t judge a book by its cover. Instead, judge Martin by his returns.
The JC Clark Adaly Trust, which Martin runs, has achieved 15.83% compound annual returns since inception in 2000. Clearly, he’s beat the TSX by a wide margin. Martin’s cumulative return since 2000 is 875%. If you had invested $100,000 with him in 2000, he would have made you a millionaire by 2015. In his best month, Martin achieved a 21% return. In his best year, Martin achieved a 57% return. And in 2015, a year that was marred by market volatility, Martin was already up 17% by June. In other words, don’t underestimate Martin. It’s true that he makes investing look easy. But don’t be fooled — the market is a very complex and treacherous place, and Martin has found a method that works for him.
Early in his career, in 1988, Martin joined Gluskin Sheff + Associates, where he spent 10 years being responsible for the analysis and management of the Canadian and U.S. equity portfolios. But Martin struggled. That may seem surprising in light of his current returns, but it’s because, as Martin explains it, “I started out as a value investor.” It was only when he found himself sitting on the sidelines and not participating in the spectacular gains others generated during the bull market that Martin converted to a GARP (growth at a reasonable price) investor. After his epiphany, Martin decided to leave Gluskin Sheff + Associates and strike out on his own, co-founding the Strategic Advisors Corp.
Over the next seven years, as Strategic Advisors’ president and portfolio manager, he managed the Adaly Opportunity Fund (now rebranded the JC Clark Adaly Fund). In those early days, Martin’s core strategy was purely risk arbitrage. He explains in the interview that during the early 2000s, merger and acquisition spreads in the market were often overlooked, and so one could capture 20% spreads on a consecutive basis. Once the market became more efficient, though, and squeezed those spreads, Martin shifted to what remains his strategy today: growth at a reasonable price. Martin is a high-conviction investor, so his hedge fund is usually limited to under 20 stocks. Those stocks can be described as high-growth, small- to mid-cap companies that are on the verge of making it to the big leagues. Martin has a knack for finding and then investing in companies before they make rapid price advancements in the market.
Conviction: when an investor has such a firm belief in a particular stock that he or she allocates more money to it than usual in anticipation that its returns will be more than those of other holdings in the portfolio.
Inflection: the turning point in a company or stock price, either up or down, for better or worse.
Option: the right or obligation to buy or sell a security at a specific price, at a specific quantity, within a set period of time.
Optionality: asset returns that are not currently priced (or appreciated) in the market but that can occur in the future, if one or some factors (options) play out.
Probability: the likelihood that an investment will perform or not perform based on an investor’s initial thesis. Probability can be applied at the market, portfolio, and stock level.
Spinoff: a divesture of a parent company’s division or subsidiary to existing shareholders in the form of a new publicly traded company. For example, eBay’s spinoff of PayPal in 2015.