Shree Viswanathan: The Investment Opportunities In Poland

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ValueWalk’s Raul Panganiban interviews Shree Viswanathan, founder and sole employee of SVN Capital. In this part, Shree discusses the opportunities he sees in Poland, when does he sell, lessons he learned during the period of lockdown, and his favourite books and hobbies. Transcript continues.

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Wow. And then last one, you mentioned Poland. So I just want to know what kind of opportunities you are seeing in Poland. And then if you can go more over into an overview of why Poland in general is?

Sure. So if I know, let me go from the reverse. Why is Poland sort of attracted even though I said, and I'm looking for opportunities from a bottom up analysis? To answer your question, I think, to provide a pitcure in about Poland would be a good starting point. As a country, it's been independent only for about 50 to 53 years, over the last 500 plus years. It's had a phenomenal history, but unfortunately, for a variety of different reasons. It's been controlled by somebody else, until this most recent, you know, [inaudible] LED uprising, I should I would say it was controlled by part of the, you know, Russian Empire USSR web, I would say, but since then, um, the administrations, various administrations have done a phenomenal job of focusing their efforts on education. And as a result, you now have a population base that's more than 90 plus percent well educated. And in fact, particularly within that, their focus on technology has helped them in a way that is somewhat unique to Poland, you know, coming from India, for example, you know, in early 1991, there was a, there was a fiscal issue in New Delhi. And as a result, the country had to open up its economy.

And in addition to that, the 2000, the y2k bug could have set up the country to take a lead in terms of technology oriented offerings, I see somewhat of a similar path here in Poland, the country has become sort of epicentre for gaming related companies, Western world, gamers, or gaming companies have a presence in Poland, these days, a number of venture capital firms have sort of moved into Poland, following that kind of push by the by the locals, and are the University of interest in Warsaw. And I'm sure I'm gonna mispronounce the name of the city, South Central Poland, it's, it's spelled as WRCLW. But it's pronounced something like broad Chow or something like that. Um, so those are great, you know, universities, which are churning out a lot of tech talent. So that's the guts of the individual level. From an economy standpoint, you know, you all have this part of EU but it's not in the Eurozone.

And so they have destiny or their own currency, they use the name of our currencies, zloty. It's approximately four zlotys to $1 which has actually held relatively well, you know, over a period of time against the against the US dollar, compared to many other emerging currencies like Indian rupee, or Mexican peso or many other even some of the developed market currencies. So, that's the currency level data the sovereign level is also very manageable at less than approximately 50% of GDP, which is much better than many Western country. sovereign balance sheets. So you have a you have a sort of a setup that is somewhat comparable to many of the Western countries.

The other interesting aspect is, until this COVID related pandemic hit the country, it was growing at a pace of approximately 4% GDP per year. And so on a global scale, it is the second fastest grower second only to South Korea. That's how rapidly The country has grown over the last 30 years. That's the sort of a macro setup. And more recently, just over the last couple of years, they've kind of reconfigured the pension programme. All as ppk. The details are still somewhat, it's still evolving, I would say a chunk of it has been designed and put into place. But I would say it's still somewhat evolving, not quite, not quite, at the place where I've seen many other countries, I told you early on, right before I went to business school, I spent time at this insurance company in Des Moines, Iowa, it was principal Financial Group, Principal, is the largest 401k provider in the country. And my job at that point was to be the controller for many of these offices that were opening up in different parts of the world. You know, we were opening up offices in Indonesia, Hong Kong, many South American countries, including Chile, Argentina, Mexico, and in you know, two big examples came out.

One was Chile, and the other one was Singapore, both priests had used the power of this pension programme, to create an infrastructure that was, you know, big enough quality enough to compete against the Western world. And I'm not saying Poland has put together a programme like that. But I'm seeing the initial path towards using the power of a pension programme to develop the country. So my observation based on the amount of work that I have done and I am doing is, there are some interesting technology, and in a couple of other areas as well, where businesses are generating very healthy returns great entrepreneurial spirit from the founding management teams, but at the same time, because it's Poland, valuations or valuation across the board is a lot more attractive compared to what's available in the US or in the Western world. So you know, more work to be done. I am doing it, but more work to be done. And it's an interesting market that I'm going after.

Definitely, yeah, no, I'm glad you shared all those details and things to think about as well.

Yeah, as an investment manager, I'm one of these is to be able to look around the corner. I certainly claim to be claimed to have that clairvoyance to be able to look around the corner all the time. But it absolutely, you know, requires me to kind of at least spend the effort to try and understand what's available, what's coming my way in that regard. And Poland is a market that is relatively small, there are only 800 publicly traded securities on the Warsaw Stock Exchange. But it's growing just a couple of weeks ago, the Amazon of Poland, a company called Allegro went public, you know, very well received locally, but that's my objective. And I'll continue to look around the corner and make myself absolutely comfortable that risk. You know, there's obviously putting capital at risk, right, a risk like that will pay off over a period of time. So it absolutely behoves me to spend time right now. That's what I'm doing.

Getting back to portfolio management. When do you sell?

Yeah, ideally, you know, if a particular name is done, well, is doing well. You know, I wouldn't sell but I'll Generally, so, if my thesis has gone wrong, um, you know, as I said, a couple of you know, interest rate exposed names that became a little bit of an issue or, or you know, if there is a, there is a fraud involved or some sort of factor that is driving the thesis away from my original thesis, outsell, and to a certain extent, if there is a better opportunity with that capital to work.

All right, and then on your site, you had a letter detailing the lessons you learn during the period of lockdown. So, I just want to know, what are your key lessons that you have learned during this time?

Sure. I had a couple of people reach out to me, um, asking me how I was thinking about the portfolio, given the fact that we have this. We have this elections coming up, and everybody talking about how that's likely to result in increased volatility and things like that. So that's what led me to kind of put a letter out there talking about the lessons learned during what I call us ad or after domestication. The most important point that I make is, it is what is important here is to be able to, to spend time in the market as opposed to timing the market, meaning I'm not looking to, you know, sell now, just because of expected volatility, and then try and come back, that requires me to be right twice, to be able to sell at a high and be able to re enter at a low, that is almost impossible.

So, you know, that's number one. Number two is sort of, you know, immediately after 2016 elections, you know, Warren Buffett was interviewed, and he actually said, you know, in my time, I've had about 15%, of the time president that I did not vote for, but that never kept me away from the stock market. So for almost everything in my life, Warren Buffett is the North Star. And so I always look for some sort of a guidance from him in that regard. And then, and I'm going back more than 120 plus years, 125 plus years, and I was somebody had done a good bit of research on how $10,000 invested in 1896 would have become 7 million, if that individual had just left it there, as opposed to not crossing a million if that individual was invested, either only during republican or only during Democratic administrations.

So the point here is to be to take a fairly long term approach, not hundred and 25 years, nobody has that kind of a patient. But to take a long term approach and ignore these sorts of, you know, volatility. And that's, that's the big, that's the big takeaway. The one of duty is not risk in a permanent loss of capital is risk. And I think it was James Monti, a. He's currently a GMO. And years ago, when he was an associate in around he used to write well, a lot more than he said, there are three parts to this adds to this permanent loss of capital, valuation risk, fundamental business risk, and financial leverage risk. And I as I've explained in this conversation, I generally try and avoid financial leverage. A fundamental business risk is something that I spend a lot of time trying to understand and understand the quality of the business. valuation is absolutely important. I'm not looking to pay in a single digit p e, or something like that. I'm looking to pay a reasonable price. But I'm not definitely not looking to overpay. So I hope to keep an eye on on those factors. And that's the major takeaway from the letter that I wrote.

And then just wanted to switch over to some personal questions here. What are your favourite books?

Sure. So coming from coming from India, you know, from a very young age, I've been exposed to this. You know, India is the spiritual capital of the world. I've been exposed to that part of human life. I personally have been very curious about certain aspects of that, you know, spiritual pursuit. And as I bring that into this SVM capital portfolio, as a part of my responsibility to keep that sandbox to not have too many moving parts, I personally think I need to tamp down the rd that's happening between the ears, between my ears. And one way to do that is by meditation. I spend somewhere around 30 to 45 minutes, typically 30 to 45 minutes, I aspire it to be about an hour or so. But I'm everyday first thing in the morning. And in that regard, the first book I would, I would bring up as a spiritual one.

Nothing to do with religious aspect, but something to help people think about meditation and calming the mind down particularly at all times, like two good books. One is called A Search in Secret India by Paul Brunton. It was a it was an he was a sceptic, from UK back in the 1920s. fantastic book, and a more contemporaneous one called The Monk Who Sold His Ferrari by Robin Sharma. From an investing standpoint, you know, all the letters that Warren Buffett has written, they are phenomenal, you know, teaching points, if it's somewhat difficult to go through letter by letter, Professor Larry Cunningham has done a phenomenal job of compiling these letters by topics. Either one of those two would work. In my effort to kind of double my capital and put up you know, significant returns.

I've stumbled onto a couple of good books in that regard that top things about multi baggers. First one is called 100 to 1 in the Stock Market, by Thomas felts. And the sequel by my friend, Chris Mayer, he wrote a book called 100 Baggers. Both are fantastic. 100 yo 1 in the Stock Market, you know, talks about depression era, all the way to early 60s or early 70s. And Chris Mayer picks it up from that point on until 2013, or 14, both are great books.

And then there is another less talked about book, but just as good in terms of investing a book by the title of "Of Long Term Value And Wealth Creation" by a gentleman from India. His name is Barack Shah. Unfortunately, the book is out of print, but I think if people searched online, they can find some PDF versions available. Phenomenal book that helps people think about quality and patience and compounding.

So those are the investing related books, then, you know, generally to think about really long term, there was a book by Dr. Hans Rosling. He was a Swedish doctor. He wrote a book called Factfulness, about how our perception of the current market conditions is very different from reality, reality being a lot more better than our perception. That's the takeaway from the book. fantastic book. Um, so those are the books and then I always like these business biographies. Quench Your Own Thirst by the founder of Boston beer, and Junk To Gold by the founder of Copart, Willis Johnson.

Yeah. And so just want to know, what are your hobbies also?

Sure. So again, this goes back to my desire to keep the party between my ears tamped down. And so my first and foremost, focus is on keeping that under control. And meditation is a is a hobby is a pursuit that I do every day. You know, reading of course, a variety of different topics is another very important aspect of my daily life. And growing up, I played league cricket, cricket is a sport. And for about 10 plus years, I couldn't follow what was happening in India after I landed here. But thanks to internet thanks To everything that's happened on a global front, I'm able to follow the Indian cricket team, and specifically my home team, Chennai, Super Kings. So, wherever they play, you know, I sort of try and catch a glimpse of what they're doing on the ground. So those are my find for dream aspects of life.

And so just want to know your closing thoughts.

Sure. So and I'll I'm SVN capital as a value investor with a heavy quality overlay you know, would like to continue to, you know, improve upon that over time. Now, Malcolm Gladwell has written a number of different books, not necessarily recommending his books, but in one of the books he made a fantastic statement, which has always stuck with me. incompetence is the disease of idiots. overconfidence is the mistake of experts in competence irritates me, overconfidence terrifies me, it salutely terrifies me. And I hope to be able to avoid the idiotic aspect as well in my pursuit to create wealth. So, with that, you know, I sincerely appreciate you taking interest in time to talk to me. And yeah, had great fun discussing SVM capital in my personal pursuit.

Transcript continues.