Ep667: Shreekkanth Viswanathan – Qualitative Strengths of a Company Matter Too

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risks in their lives to join me go to my worst investment ever.com and sign up for a free weekly become a better investor newsletter where I share how to reduce risks, create, grow and protect your wealth. Fellow risk takers, this is your worst podcast host Andrew Stotz, from a stars Academy, and I'm here with featured guests, Shree, Shree, are you ready to join the mission?

00:42
Absolutely.

Andrew Stotz 00:43
So I'm excited to have you on and you know, I have learned a little bit about you from listening to interviews about you on other podcasts. So I'm excited to have you on and let me just introduce you to the audience. Shree is the founder and portfolio manager of SVN capital, a Chicago based concentrated, long only global equity focused fund. After graduating from University of Chicago Shri worked as an investment banker for a few years before moving over to the buy side. Shree describes his investment style as value investing with a quality overlay. Shree, take a minute and tell us about the unique value you are bringing to this wonderful world.

Shreekkanth Viswanathan 01:25
Absolutely, Andrew, first of all, I should thank you for reaching out and having me on your wonderful program. What a fantastic title. That's after you. I sincerely appreciate you bringing me on. So just as a quick background, I'm originally from India. It used to be called Madras these days, it's called Chennai, the town the southeast part of India, I came here as a student pursuing a master's in accounting, with some plans to pursue a PhD as well after that. But no, I stayed back, I did not pursue a PhD finished my master's and have pursued other interests, including going back to business school for my MBA, then, as you mentioned, it created an investment banking and then mostly on the buy side. To tell you a little bit more, another 100 Millions of money managers, as you mentioned earlier, right before we jumped on this recorded version, each one of us have a mission and each one of us are here for a reason. And we all have a different angle. I would highlight one specific part of what I'm here to do. My enlistment philosophy is essentially driven by three factors. And I'm going to try and highlight one of them. If we have time, in the end, we'll go to the rest of the other two pieces as well. But the one important feature of my investment philosophy is driven by spirituality. I know this is an investment related podcast, and not one focused on theology or spirituality. So you may wonder, Where does spirituality come into this? Let's rewind the clock back to 2001. In 2001, at the Berkshire Hathaway annual meeting, in answering a question about how can you tell if you have come across a big idea? Because Warren was talking about big ideas that have helped them generate that kind of return? So somebody asked this question, how can you tell if you have come across a big idea, Charlie Munger jumped in and said that big ideas come to the prepared mind. Question is how do you get to a prepared mind? So my experience in the industry, I've always thought that investing is an individual sport. In, in a book titled, the money game by Adam Smith, not his real name, his real name is George Goodman. He says that the most important thing that you need to know is yourself. If you don't know who you are, the market is an expensive place to find out. How do you find out who you are? For me? The answer to both questions is through spirituality. Not just a matter of sitting in a pretzel position, meditating, but a constant self inquiry. A big impediment to most things in life is ego. Particularly in the world of investments, this is an even more have pronounced factor. And I find the exercise of self inquiry helps me keep my ego in check. This gives me the patience and allows me to take a long term approach to most things in life. And this factor runs through all aspects of SVN. Capri.

Andrew Stotz 05:23
That's interesting, because you know, when I talk to young people these days, well, here's an interesting one, I did a CFA ethics course at the local university here for undergraduate students in finance and accounting. I had 100 students in the class. And I asked them this question, how many of you raise your hand? How many of you are not addicted to your mobile phone? And I also gave a presentation, a company flew me down to Phuket to give a presentation to their regional managers, who all flew in from Philippines and you know, Indonesia, and Singapore and Malaysia, to Thailand, to a nice resort island, there was 75 of them, and I was speaking, and I asked them the same question. Raise your hand if you think you're not addicted to your mobile phone? So the question is, how many people raise their hand? How many people you think of the students raise their hand to say, I'm not addicted to my mobile phone? What would you say three?

Shreekkanth Viswanathan 06:31
Based on what I know about your part of the world, I'd say zero, you correct?

Andrew Stotz 06:39
You know, this part of the world? Well, that's terrifying. That's not even one attempted to claim. Now, you could say there was some perception, you know, issue and maybe they're perceiving themselves as addicted. And they're not in fact, addicted. That's possible. So maybe, you could say maybe 5%, or even 10% of them or not. But still, even if you did that adjustment, you're talking about 90%. Yeah, yeah. So it's between 90 and 100. Now, let's go to the senior executives from around the region, successful people born in a different era, in many cases, where the mobile phone wasn't in their hands as a very young kid. How many of them do you think said that they're not addicted to their mobile phone?

Shreekkanth Viswanathan 07:24
Again, I would say zero, you're correct.

Andrew Stotz 07:29
So this information I like to share with people all the time to try to help young people realize that it's getting easier and easier to build a competitive advantage in this world. Yes, stop, get rid of the mobile phone, reduce the use of it, stop the focus on the immediate satisfaction of gratification, because that immediate gratification that's been delivered to you on that mobile phone is so addictive, that even people like even people like myself and other older people who didn't have that in their youth can get quickly and easily and can't get off it, they can't kick the habit. So if you're a type of person that can put aside your mobile phone, or also think long term, then you are in a competitive advantage. In fact, you could possibly rule the world in 20 or 30 years from now the way attention is getting reduced, reduced, reduced. So I think that that is an aspect of the spiritual nature, the internal nature. And therefore that also means that if everybody's addicted to their mobile phones, and everybody's running on this really fast treadmill, there is no difference though, with people investing in the stock market. They're they're chasing their tails, just as much, and more and more and more every single day, month, year. And now, you know, just one of the examples is, when I started my career in 1993, as a sell side analysts, nobody would ever say, Well, it depends on what the Fed says. Nobody gave a crap about what the Fed said we had a free market. Anyways. What are your thoughts on that?

Shreekkanth Viswanathan 09:08
Right? Absolutely. I've got two comments. One, I just recently finished reading a book titled, How to Calm how to calm your mind. The author is His name is Christopher Bailey. He's out of Canada. He's written a couple of other books, productivity project and hyper focus. It's all about focusing the mind. But this one is about exactly the point that you are raising. So, so many of us are addicted to this, you know, mobile phones and social media. And we're getting farther and farther away from what helps us Some lead a very productive life. And so the book is about how there is more fun in analog as opposed to digital. And to help us along the process is one of his recommendations is to savor the moments. Every single experience, when you savor the moment, you slow things down, and you become part of you move more towards the analog part of the world. In any case, it's a good read. It's a more recent release from him. The other point that you also raised, which I wanted to comment on, is, it's absolutely true that, particularly in the world of investing, we live in a world of 24 by Seven News Channel. Know, social media, the number of apps popping up, keeps increasing every day. And we all become highly informed. Whatever that means. If you go back to 1960, for example, an average s&p 500 stock was held by the investor, auto for approximately four years, on average. Today, it's less than eight months. Now, thanks to high frequency trading, many other news channels and all that we all get worked up about the Fed about, you know, yeah, there are real threats, the war is a real threat. And there are many other real threats. But still, if we focus on the quality of the business, as opposed to the macro, I think our approach can be a lot different. So you're right, I do intend to deploy the weapon of patience that is in my arsenal very effectively.

Andrew Stotz 12:06
Yeah, you know, I read a great book, I'll have that book, How to Calm your mind finding peace and productivity in anxious times by Chris Bailey. And I'll put that in the show notes. That's a great recommendation. And I read a great book, also called Future hype. And the guy talked about all the different things that people thought that we're moving so much faster now. I mean, he just each chapter just dismantled something that you absolutely believed in before you read the chapter. And, and, you know, and he talked about, you know, I think he talked about email, and you know, how, you know, quickly we can communicate, and he, I think he uses the example of John D. Rockefeller in 1898, had the daily refinery volume of his Russian refineries reported to him every single day. And so it's like, yeah, is that like new? So, talks about how the fact is, and I've, once I read this book, I made a big change in my life, once he talked about the fact that people spend maybe 468 hours in their email all day. And what's the cost of that? And we don't think about the costs of that, is it really an advancement when it comes with so much cost? And that stopped me? I mean, basically, I really don't spend much time at all in my email, I'd say, on average, I spend probably 10 minutes a day in my email. And I reply to everybody, they get a fast reply. I just don't do it with my labor. And so I learned that lesson. And that brings me to the mobile phone. There's all kinds of advancements, and everybody likes say, yes, yes, I've got this phone. I've got this phone. It's got more computing power in my pocket than my parents had in a desktop computer. Yeah, but did you? Did you calculate the cost of addiction? Right. Yeah. Yeah. So this is great, you know, things to think about? Well, that's, that's a great discussion about your uniqueness in the spirituality of it. And you know, what I want to now just talk briefly about before we get into the big question, just because knowing a little bit about what you're doing, what is the universe of stocks that you're looking at you you're, you know, you're investing globally? Does that mean every country in the world does that mean every developed country in the world? Does that mean every developed and emerging or frontier? Or does that mean every company that's above 5 billion US dollars? Or how would you describe kind of your universe?

Shreekkanth Viswanathan 14:36
Yeah, so yeah, I say global. But, yeah, there's definitely some caveats in there. I was trained as an accountant, CPA, I did CPA equivalent program back in India as well. So I understand I think I understand the language of business, and that's accounting. So there are many accounting regimes around the world, you use generally accepted accounting principle. And the other popular one outside the US is IFRS International Financial Reporting Standards. So and there are other accounting regimes, and others one in Malaysia, there's one in Mexico, even though Mexico follows IFRS, they all have their own local county Jeeps. I don't want to understand all these accounting languages, I sort of am familiar with US GAAP and familiar with iPhones. So US GAAP is only for the United States. And I go after other countries where IFRS is the only language. But then there are 110 countries that follow IFRS. And I need to be able to bring it down to a reasonable field. And so I overlay a couple of other constraints. Number one, you know, around the world, we still have regimes that expropriate private, private assets, we've seen that happen many times in Latin America. And no sort of has happened in Russia now. So I want to be in countries where I can understand personally, my understanding may very well be different from your understanding, so be it. But I want to be comfortable in a particular country where I can appreciate the IP rights, the governance and IP rights. So that's number one. And then on top of it, you know, you have a number of European countries, Japan, they all follow IFRS. And they have some, you know, excellent local regulations and property protection and all that. But Japan files, all its financials in Japanese, I don't know Japanese, I don't know, you know, Spanish or Italian. So there are countries where they have this IP laws, but have local language limitations. So I avoid those I want, I want to be able to spend time reading the English version of their financials, appreciating and understanding that and don't want to spend time or money translating stuff. So that sort of all whittles me down to a reasonable few countries. So that's the macro picture. And on top of it, I don't have a size restriction in terms of market cap or anything. What I am interested in is truly high quality businesses. What do I mean by high quality? There, I bring in a few quantitative measures, I want to be you know, when I deploy capital, when I manage other people's money, my objective is to double the capital over the business cycle. In the US, our business cycle is about five to seven years. And if you translate that into numbers, it's about 11%, or 15% return a year. So that's my objective. So to get there, I want the underlying businesses to be generating at a number that's much better than 15. So I want them to be generating high return on incremental capital, not just the high return, but I also want them to be able to redeploy to reinvest to generate similar kinds of returns. So that's where much of the machinations happen on my computer. And I try and understand the quality of the business through that quantitative angle. Qualitatively, I want to understand who the competition is. Because any business for that matter, what's the one factor that's consistent, that's constant over time, and that is reversion to me. So a business generating higher return on incremental capital will automatically attract competition. But there are a few businesses around the world, not just in the United States, but around the world that are able to consistently put off therefore, such devotion to Me. So if you dig in and find out what the primary factor is, it's typically their competitive edge. So monopolies in the workplace and you know, that are able to consistently pass on the additional cost even in inflationary period and generate healthy returns and reinvest. So that's the quality part of the business. And then I want the businesses has to be run by honest, competent management teams. Typically, I see them in owner operated businesses, actually, I need to sort of provide a caveat in there too, because owner operated is, or high ownership interest means one thing here in the US, it doesn't necessarily mean the same thing in Asia, I've seen that play out and China and India, many other countries. So it's a little bit of a, it's a little bit of a nebulous factor. But I use that as an important criteria for me. And then finally, obviously, I don't want to overpay, I want to pay a reasonable price, as Buffett has mentioned, pay a fair price for a wonderful business as opposed to wonderful price for a fair business. So at the those are my those are my criteria. So well down the global into a select few, and then overlay that with these quantitative and qualitative measures. Let's say

Andrew Stotz 21:06
that you look at your universe that you've described, that, you know, has, you know, proper accounting that you like, there's no approach history of appropriating of assets, they've got, you know, intellectual property, right protection, or they're filing their financials in English. And you know, that that narrows things down and you've got a universe of some number of companies. And then we looked down at your other criteria, things like, you know, the growth, the incremental capital, the management, the competition, and that, and now you come down to really what I would call, like an eligible pool that you could, that you could build your portfolio out of, and any one of these companies would be worth your time to spend some time to think about. And let's say they're, they're on the shortlist, and that you're watching them. Is that 1000 companies? Or is that 100 companies? Before we talk about getting down to your portfolio, the step before that, how many companies do you think kind of fit your criteria out there?

Shreekkanth Viswanathan 22:09
It's just about, I would say, about 25 to 30 companies. That's it. So let me actually drop in or provide you a little bit of fun digression, if you don't mind. Back in 2017 2017. There was a professor by the name of Hendrick Besson binder, not sure if you have come across recognize that you recognize that name. Okay. So, no, Henrik vesselfinder. He teaches at Arizona State University here in the US, he released a paper with a very provocative title. Do stocks outperform treasuries? No. Generally speaking, we would all say, yeah, absolutely. Stocks outperform treasuries? And what sort of question is that? That's why I said it's a provocative title. But he went on to kind of dig in, went back to 1926 and brought it all the way back into the mid 2010s. And he said, barely 4% of the stocks accounted for all the gains in the US stock market. Barely 4%. Incredible. And, and, and so there is an outfit out in Scotland, Bailey Gifford, they came across this paper and they said, Professor, do you mind we are a global investor, do you mind running the same exercise on a global scale? He came back, did the work, he came back and said barely 3% of the stocks, you know, beat the provided the returns over that long period of time. So if you sort of keep that in the back of your mind and ask this question, why do 96 or 97% of the stocks underperform? And that's why I mentioned it's the reversion to mean, that sort of, you know, competes away any sort of advantage. These businesses have, but at the same time when you go look at certain specific businesses, either because of the monopoly of the duopoly positions they have, or some sort of an edge. Some of the luxury businesses for example, enjoy that as well. Now they're able to pass on the cars they're able to consistently produce returns at a very healthy clip and reinvest. So that's the key. That's Reason.

Andrew Stotz 25:00
So I'll have a link to this research paper in the show notes. It was originally published in the Journal of financial economics. And he wrote this in 2017, and then revise it in 2018. And there's that. I've just found it on SSRN, where I often go for papers. He's had about 42,000 downloads from it. And here's what he says in the abstract would you've obviously remembered very well, but it says four out of every seven common stocks that have appeared in the crisp database since 1926. Have lifetime buy and hold returns less than one month treasuries. So four of every seven, you would have been better off investing in treasuries. That's more than 50%. Yeah. And then, and then he said, When stated in terms of lifetime dollar wealth creation, the best performing 4% of listed companies explain the net gain for the entire US stock market since 1926. As other stocks, collectively matched T bills. Goodness gracious,

Shreekkanth Viswanathan 26:08
yes. Well, you've fabulous paper. Let me also make one more comment. This is just a comment. And at Berkshire Hathaway, Buffett and Munger have recruited two younger gentlemen to run the portfolio along with Buffett. One of them is Todd Combs. And he was at Columbia University recently. I want to say just a few months ago, and he was having a chat with one of the professors who runs the value investment course at Columbia. And Todd was just sharing some of the back and forth with Munger and Buffett and was a fabulous conversation. But at one point, he said, Munger asked me, Todd, how many or what percent of the businesses do you think within s&p 500 will remain high quality five years out? And, you know, you're talking about the largest 500 companies in the US. And Todd said proximately, 5%, monger came back to him and said, I think it's going to be less than two 2% 10 companies. I mean, that's just the that's just the way they think that and I absolutely agree.

Andrew Stotz 27:47
How do you, when you look at that, I mean, I just find what you're talking about, very fascinating. So I have to excuse myself for asking a lot of questions before we get to our big question. But how the problem that you face when you do this, right, and you come down, and you look at, let's say, a global universe, and let's say that you put pretty tight criteria. And you also know that 4% of stocks produce almost all the return. So there's no sense in messing around with much. So let's say you've got a universe of 20 to 50 stocks, and that's it. And my problem that I face, and I know a lot of people face is that come on, all those stocks are well known, and they're really expensive. It's not like you're gonna find that, you know, gem to be, you know, trading at half of book value, and six times PE. So how do you deal with the valuation aspect of great quality companies?

Shreekkanth Viswanathan 28:44
Yeah, so fantastic question. It's a question that I wrestle with every day. I sort of try and articulate it to my friends as well and articulated to myself first. So yeah, valuation is a very important piece of the of my criteria as well. But I've made that and over time, I've made that transition years ago, and I was getting trained in this business. Late Mr. David Heller, the founder of one of the firms, I worked for advisory research. He used to grill into us that the first and foremost piece is how cheapest the stock and cheap define this low price to tangible book. But it worked for a period of time at that time in the mid 2000s. And so I used to start off my analysis with valuation. Over time, I've had to unlearn a few things from my past and relearn some important lessons. And that is not to lose sight of a very important criteria, which is valuation, but not to put that on top. And I put that on top many quotes Many businesses do not open their doors. When I focus on quality, the way I defined it, in a high return highway investment and own owner operated, many quality businesses are then available for evaluation, keep valuation as the fourth factor. The first one is, it's got to be a business that I can understand. There are many businesses I don't, I don't go into oil and gas or Bitcoin or biotech, avoid all those. But there are many that I do understand. And so this is the fourth of the four investment criteria that I use. And within that, I again go back to Charlie Munger comment. years ago, he made this comment about how even if you paid a very low multiple on a business that is generating say, you know, 6%, return on capital, but you picked it up at two times earnings or, you know, at a very incredible, very attractive valuation, you hold it for long enough period of time, you're going to generate the same return that the business generates. On the other hand, you look at a business that's generating 20 plus percent cap on capital. And you do end up, say, paying up for that business, you hold up, hold that stock for a long enough period of time, you will end up generating the return of the business itself. So that sort of statement is in the backdrop, as I think about valuation, but no time horizon, combined with this unique feature of competitive edge, resulting in return on capital that, you know, that is well north of 15 20%, with little to no debt. And that's a very important factor. I'm looking for businesses that are self funding. I'm not looking for businesses that need to use some form of outside capital. I don't invest in banks, for example, banks, by definition are levered eight to 10 times. And I'm sure you've seen all the recent blow ups in the United States and in Europe. So a wide those a wide businesses are balance sheets with debt, you know, go after businesses that are self funding. And no, I own I want a couple of them in Poland, for example, one of them reinvests 100% of the free cash back into growing its store base. That's a wonderful concept. It's a wonderful capital allocation mechanism.

Andrew Stotz 33:07
Yep. All right. Well, what a great introduction, we've learned a lot. But now it's time to share your worst investment ever. And since no one goes into their worst investment to get will be tell us a bit about the circumstances leading up to an intelligence your story.

Shreekkanth Viswanathan 33:22
Yeah. So again, this is a wonderful title, I have to congratulate you on coming up with a fantastic title for your podcast, the worst investment ever. While we don't want to be frozen by our past mistakes, I think we do need to be able to learn the lessons and try not to make the same mistakes. So actually, this reminds me of another book by this gentleman, Thomas Phelps, not sure if you've heard of Thomas Phelps, he wrote a very popular book titled 100 to one in the stock market back in 1972, or 73. He said, Good judgment comes from experience. And experience comes from bad judgment. I've had a great deal of experience. That's what he said. I have a ton of experience to know like many of us, I made both types of mistakes. I continue to make mistakes, I think, what both types of mistakes are no mistake of commission and mistakes of omission. As I started thinking about your podcast, I kept going back to errors of commission investments that turned out to be disasters. However, when I compute the quantitative impact of the loss, which is Oh, I thought about answering this question. The bigger mistake is an error of omission. That is, after studying a particular business, I decided not to invest in it for a variety of reasons. Let me give you the specifics. And I'll back in 2009, for example, I was employed I was an analyst in the PMF company here in Chicago called advisory research, and are back in 2009. As the economy was struggling to come out of the real estate centered malaise, I spent some time studying this company called Copart Copart, Inc. This is the largest salvage yard company in the US. The business is pretty simple. Now, when a vehicle on the road gets into an accident, that thing then the damaged vehicles are hauled to a salvage yard. The insurance company which covers that vehicle, will quickly decide if they're going to pay the policyholder for repairs, or total the vehicle and call it and send it to the salvage yard. There is a quick math that they can run. That's all they decide. But for a variety of reasons. And our complexity, the core, the type of electronics that go into it, labor costs many other reasons, more and more insurance companies are choosing to throw the car and send them to the salvage yard. But then what happens to these vehicles from the salvage yard? Well, the yard Warner will auction these vehicles, and there are buyers around the world. Buyers will buy these, but get the parts and fix up their own vehicles, or just pull the parts and sell just the parts and things like that. So in any case, Copart is the middleman it gets paid from both sides, the insurance company which wants to get rid of the vehicle. And then the buyers who are buying this from, you know, from the salvage yard itself. So essentially think of this as a eBay of dinged and damaged vehicles. Now, right from its early days, the company was founded in the late 70s, early 80s out of one salvage yard in California.

Andrew Stotz 37:29
How do you spell the name?

Shreekkanth Viswanathan 37:32
Copart. CO, Pa RT?

Andrew Stotz 37:35
Okay, got it?

Shreekkanth Viswanathan 37:36
Yeah. So I know, from its early days, the founder, Willis Johnson yet decided to actually own the land on which the salvage yards operate, as opposed to what as opposed to leasing the land. Now, you know, given the real estate, given that real estate was the epicenter of that 2008, nine, pre financial crisis, there were a lot of businesses that were really, really cheap. I wanted to see if at that price stock was, you know, the market cap was about 350 million at that time. At that price, I would be paying for just the land in all the salvage yards that they had, they had about 140 yards around the country. I'd be just paying for the land, and I would be getting the operations for free. That's the hypothesis I was working off of did all the work. I came to a conclusion. No, at that price. I still have to. I'm not just getting the land, but I have to actually account for the operations as well. So again, you have to put yourself back into those and eight, nine when the fear was palpable, and everything was cheap. Since I couldn't come to that conclusion, I decided to move on. There were lots of other options. Over time as the economy improved and the business improved company's earnings and cash flow improved as well and stock price reflected that that improved quite a bit as well. I was just on the sidelines, watching the stock rip. By 2020, the stock was up 10x from 2009. And none of the other permission mistakes that I've made come close to this kind of loss. This kind of

Andrew Stotz 39:47
Yeah, it's interesting because I went to the website of the company and says their latest results announcement it says for the six I'll just look at six months for the six months ended January 31 2023 revenue was In 1000 850 million, gross profit was 800,000. So almost a 50%, gross profit margin, let's say. And the net profit was 540 million. So we're talking about net profit of about 20% or so roughly, which is incredible given that my calculation of the average net profit margin globally, is about 6%, over the past 20 years. So through the ups and downs of the different cycles, you could say, a good company in a good industry, maybe 10%. But to see, this is pretty incredible. So what are the lessons you learn you learn from this?

Shreekkanth Viswanathan 40:47
Yeah, there are quite a few actually. One important lesson is that the qualitative strengths of the of a company are not readily apparent in the financials. And are, for example, in this business of salvage yards, essentially, there are only two major players, you know, Copart has close to 55, you know, unofficially, even north of that sort of percent market share. And the second public company, which is actually in the process of being acquired now, somewhat, it's a smaller piece 35, so percent, and then there are a few Mom and Pop operators around the country. So the qualitative strength here is the competitive edge. Essentially, this is a duopoly. And it was a certain extent, because of what the second competitor is going through a sort of a quasi monopoly, I would say. No, Peter Thiel in his, in his book, zero to one. He said this nicely, in a competition is good for capitalism, but not good for capitalists with limited competition, the moat here is immense. That was, that was one big mess. The other big mess is the strength of the management team. I mean, even today, this is an owner operated business. Willis Johnson, the founder is still the chairman, his son in law, who's been with him since he was 19 years old, as essentially worked in only one company. He's the CO CEO today. So it's an owner operated business. And I know the decision to own the land back in 2003, they sort of made the decision to make the move the entire auction process to online as opposed to doing it from their salvage yards, has continued to pay rich dividends. And in fact, during COVID, when nobody was allowed to go out, this online business turned out to be a fabulous success. And the competitor, who was doing it from the salvage yards, was forced to switch over to online. So those quality of decisions, again, is not readily apparent. But you can overstretch of time, observe the strength of those decisions. So those were, those were a couple of big weaknesses. And I could see how those advantages kind of led to strong returns. And typically, that's what I would say, in high quality businesses, those types of not apparent decisions will come out the strongest drivers over a long stretch of time.

Andrew Stotz 43:47
Yeah, and I guess my takeaway said, for the listeners out there for young people out there, you know, get out and work in business. A lot of people just want to become an analyst or become an investment banker. I mean, all the young people that come to me to learn valuation and stuff like that, they all say that, and I know for me, I went to work at Pepsi, even though I, I studied finance, and I worked in our warehouse, and I worked in our manufacturing facility, and I just learned so much about, you know, so much. And then, and then we set up our coffee business here many years ago, about 30 years ago. And my best friend runs that and basically, you know, by doing that, I just became such a better analyst. Unfortunately, I made other mistakes. But after that, you know, it just helps you to you know, so my biggest lesson that's number one, is really get out there. And, you know, it's not all I think, despite the fact that I think you've got a lot of quantitative aspect to you. The two main lessons that you talked about qualitative strengths are not always in the financials, and you got to really try to understand the strengths that are management teams. Those are really qualitative factors. And that's what really makes a difference. The other last thing I would say is just that, isn't it amazing? Like, there's all these people doing incredibly interesting businesses and making smart moves, because I was just thinking like, buying the land of the sow, Well, naturally, nobody's out there buying that land, it's gotta be super cheap. You know, and these guys that run the salvage places, so like, that's their family land, and that they know, nobody's gonna buy it. And, you know, just like, and you know what, somebody's going to make another salvage yard in, in that neighborhood or in that city, unlike

Shreekkanth Viswanathan 45:37
salutely. So they now have like, 1000 acres of land in cran. Relative to 1980s and early 90s, the size of the cities are only expanded. And the salvage yards, which were in the outskirts have now become part of the big city. And competitors. It's not going to be it's not going to be easy to replicate this. Anywhere. Yeah, incredible.

Andrew Stotz 46:02
So based upon what you learned from this story, and what you continue to learn what what action would you recommend our listeners take to avoid suffering the same fate?

Shreekkanth Viswanathan 46:11
Yeah, as I mentioned, early on, investing is an individual sport. And each one of us will have to play to our strengths. While I was trained in that classic mold of looking for cheap stocks, cheap in terms of valuation, I've continued to evolve as time has progressed. And, as I mentioned, I have that four part feature to my investment criteria, versus as I can understand high quality and no skin in the game and reasonable valuation, while many investors in the stock market these days start off with valuation as the lead driver. For me, again, I'm talking just from my standpoint, for me, as a patient, long term, quality focused investor, that's the last of the four investment criteria. It's a smoke. No, it's not, I'm not. I'm not saying I'm ambivalent or ignoring valuation. Absolutely not. I'm just reordering the priorities. That has been an immense help. And, oh, I have grown.

Andrew Stotz 47:31
So you've given us some great resources. In particular, that paper, I'm going to put in the show notes. Is there any other resource you'd recommend for our listeners?

Shreekkanth Viswanathan 47:42
Yeah. No, again, allow me to work. Thomas Phelps one more time. He said in that book, 100. To one, the stock market is said, to make money in the stock market, you must have the vision to see them, courage to buy them, and the patience to hold. And according to him, patience is the rarest of the three. And most successful investors that we know, perform at a high level on each one of these variables. And, you know, more importantly, people like Buffett and Munger, I use them only other many other investors, I use them only because your audience and many others will be able to relate to those two. And they continue to hone their skills over time. So how do you get the vision, courage, patience, it's a question worth pondering. For me, I go back to I rely on spirituality to help me have serendipity hit me regularly. I read a lot, both investment related and particularly non investment related. And while I'm not smart enough to read as you know, diversity as bought as Munger recommends to create that mental model and a lattice network, I read with that within a confined area, and these have helped me unlearn. Unlearning, is actually a very important and a very difficult process actually unlearn some of the lessons from my past to relearn some of the new things. So no, I would suggest the tools would be find out who you are. Whatever mechanism that helps you and read widely

Andrew Stotz 49:43
fantastic. So the book I'm gonna put in the show notes the book is 100 to one in the stock market and distinguished security analysts tells how to make more of your investment opportunities. I noticed it's available on Amazon only in Kindle and audiobook which Did you really? Yeah.

Shreekkanth Viswanathan 50:02
Oh, no, I have a hard you had the physical book. I bought it. Okay, no, I had it.

Andrew Stotz 50:06
I'm gonna have to see if I can find that. But I'll put that in the show notes. All right, last question, what's your number one goal for the next 12 months.

Shreekkanth Viswanathan 50:16
Given my style of investing in high quality businesses, I don't trade much. Fortunately, we also know that they do not need too many of these stocks to create wealth. So my objective is to find at least one new stock that can be a multi bagger.

Andrew Stotz 50:36
Just one, that's enough, well, listeners, there you have it another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. If you've not yet joined that mission, just go to my worst investment ever.com and join my free weekly, free weekly become a better investor newsletter to reduce risk in your life. As we conclude, Shree, I want to thank you again for joining our mission. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Shreekkanth Viswanathan 51:11
Well, thank you for making me a member. But yes, I do. And remember, I mentioned that my biggest error was that error of omission and Copart was the company during COVID, imposed 2020 period, I corrected the error by adding it to the portfolio when the stock got hit by almost 50%, better late than never, I guess that's the approach I've taken here. But I sincerely appreciate you Andrew for taking the time and having me on your wonderful podcast.

Andrew Stotz 51:53
Well, that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that. Today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your words podcast hose Andrew Stotz saying, I'll see you on the upside.