For this edition we welcome Dylan Marrello, Founder/Manager of Marrello Capital.
(Disclaimer: This interview is for informational and educational purposes only, and should not be seen as investment advice. Please do your own research before investing in any company mentioned).
Thanks so much for taking the time to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
I started investing during my undergrad days with reasonable success, although time would soon humble me.
My investing hobby got pushed to the side when I went to law school and set my sights on a legal career.
After law school, I clerked at an appellate court and later practiced as a commercial litigator for a few years at a white-shoe law firm in New York City.
I became disillusioned with that path effectively the instant I walked through the doors and turned back to investing with the sole intent of bolstering my financial position to facilitate an exit from law – at no point did I have any ambitions of making a career out of it.
Due to the nature of the clients my old firm represents (i.e. many of the largest public companies in America), I was restricted from trading the most recognizable companies in the market.
This turned out to be fortuitous as it limited me mostly to small and micro-cap issues, opening a world that I had no previous awareness of.
Once I discovered this treasure trove of opportunities, I dedicated as much time as I could to turning over rocks and honing my analytical skills. Fair to say I was not a stalwart employee.
Eventually, I developed a repeatable process that worked for me and found success meaningful enough to see a path to gaining freedom from my job.
Later, I started publishing long-form analysis on investment ideas online and commenting extensively on Twitter, through what was at the time an anonymous account.
I was fortunate to build a meaningful audience relatively quickly, probably due in part to the success of the first few ideas I shared, as well as a somewhat differentiated writing style and perspective attributable to having never worked within the financial industry, which may have made my content more accessible to others without a formal finance background.
The traction my public commentary received was the final piece I needed to quit my job.
Still, at this point, I did not have a clear sense of what I would do next, but I thought, at minimum, I might be able to monetize the newsletter I had built and earn some income to bridge me through to the next chapter.
Ultimately, I never ended up monetizing it because a new door quickly opened as a number of individuals contacted me about taking on outside capital.
And so I thought, why not?
Can you provide readers with an overview of Marello Capital?
Marrello Capital launched in the middle of January 2025.
The strategy is quite vanilla: long-only, 15-20 positions at a time with concentration at the top (i.e. the top 5 holdings currently comprise over 50% of the book).
I tend to focus on equities with market capitalizations between $500m and $2B, but there are no concrete rules there: currently, our smallest position has a market cap of $35m while our largest sits at around $100B.
Warren Buffett once said that in his early years his strategy was “85% Benjamin Graham and 15% Phil Fisher” and that later in life it shifted somewhere closer to 50/50.
One could frame this dichotomy in many ways, but the way I see it is that Graham, on the one hand, wanted to find a dollar trading for 50 cents, whereas Fisher, on the other, wanted to find a dollar that would turn into many dollars over time.
A fusion of these two styles might be framed as the application of the value investing toolkit in search of power-law outcomes.
Earlier on in my journey, I was concerned exclusively with buying 50 cent dollars.
The problem with this approach, from my view, is that you need a high win rate and in today’s market that apparent 50 cent discount often proves to be an illusion and the returns are more underwhelming than you hoped.
By contrast, you only need to find a dollar that grows into $10 a few times in life to render the rest of your decisions, however faulty, moot.
Here, the problem is that if you’re sizing these opportunities sufficiently to make a difference, you’re liable to strike out before you ever get that big win if you’re not insisting on a margin of safety.
So my approach is to look for those rare circumstances where power laws attach to situations with real margins of safety. These tend to arise under a few conditions.
One is in the aftermath of a vicious cyclical downturn spurred by overinvestment in industries where the assets nevertheless play a critical role in servicing sustainable demand; in such cases, the industry tends to rationalize through the downcycle and emerges on the other end with elevated earnings power and share prices that might have a lot of catching up to do.
This is the capital cycle theory popularized by the book Capital Returns.
To give an example of just how extreme these dislocations can be, I’d point to my investment in the Canadian cannabis company Cronos Group.
Sentiment got so bad that I was able to buy into the company as a net-net less than two years ago.
Today, its growth and unit economics resemble those of a tech company and its robust competitive advantages should position it for a very bright future.
Another fruitful angle is what I would deem free optionality.
Examples include buying an unexciting company at a discount to its assets or core business that also has a small, non-core segment no one is paying attention to with the potential to radically transform the company. Our largest winner this year Entravision Communications is a case study in this dynamic.
Another approach is to simply discover something few others have – an opportunity uniquely available in the microcap space.
And finally, I find tend to find these opportunities when, for one reason or another, investors have developed psychological hurdles that impede them from being able to reason objectively about a company’s prospects.
The first company I’ll discuss today sits in that bucket.