Charlie Munger’s ‘Fish Where The Fish Are’ Applied To Poland Equity Research

It’s been a couple rough trading days for US equities. But fear not, there’s other places to invest and other holes to fish. Yesterday we previewed one country that meets both our standards for cheapness AND quality. A country that’s pro-business, geopolitically stable and sports a cheap equities market (12x P/E).

The country is Poland.

Poland is the second-best place to do business in the world (as of Feb. 2019).

Poland’s GDP grew during the 2009 Economic Recession while the rest of Europe crumbled.

In fact, Poland experienced >4% GDP growth each of the last two years (4.8% and 5.1%).

So we’ve got this macro backdrop that looks really good. What does the equity picture look like? Pretty darn cheap.

According to StarCapital research, Poland trades at 12.5x earnings, 1.1x book and 0.7x sales. The country also sports a 3% average dividend yield. Not bad, and much cheaper than the United States equity markets.

Fish Where There’s No Fishermen

An important part of our deep value approach is fishing where others aren’t. Like Munger said, if we can fish where the fish are and fish where there’s no fishermen, we’re in a good spot. In Poland’s case, the fish are there, but the fishermen aren’t. Here’s what I mean …

Europe’s stock market ended 2019 up 23%. Meanwhile, Poland’s equity market lost 6.4% in 2019. Talk about not jumping on for the ride. But here’s the interesting part, Poland’s economy is growing and conditions for investment are better than most of Europe.

What’s with the divergence? According to a December 2019 Bloomberg article, it could be slowing expectations of GDP growth in Poland. The country’s expected to clock in 3.4% growth in 2020. This would mark the slowest growth in five years. In other words, investors expect the fish to dry up.

Kamil Stolarski, analyst at Santander Bank, said in the Bloomberg piece:

“Already low valuations of Polish stocks won’t be enough bait for investors in the coming months.”

It sounds like a challenge. It sounds like a perfect place to fish.

What Makes Poland A Fertile Value Space

Poland is a rich, fertile place to find deep value stocks. Turn over enough rocks and you’ll find P/Es of 2 and monopoly businesses trading like cigar-butts. I want to reiterate why this opportunity exists:

    1. Poland is the second-best place to do business
    2. Poland’s economy is growing >3% per-year
    3. Poland’s markets haven’t benefited from 2019’s major equity run up

I’m spending a lot of time in Poland trying to find great businesses at ridiculously cheap prices. I’ve found a few and I’m sharing two of them with Value Ventures subscribers next week.

These are great businesses at crazy cheap prices. Prices that could 2-3x in 3-5 years if we’re conservatively right.

Also, if you’re interested in our Value Ventures research service, then make sure you check out this page to learn more about it.

That’s all I got for today. Shoot me an email if you come across something interesting this week at brandon@macro-ops.com.

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