How to compound in the Nordics, Daniel Glaser of River Oak Capital?

With Daniel Glaser, the man behind River Oak Capital, I had the pleasure to discuss his way into investing and the learnings of a quality investment. Here you can find the full video:

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Here you can find the transcript of our conversation.

Introduction

[00:00:00] Tilman Versch: Hello, Daniel. It’s nice to have you on today. You are coming from Sweden; you’re located in Uppsala?

[00:00:08] Daniel Glaser: Yes, Uppsala.

[00:00:09] Tilman Versch: Did I spell it right? [chuckles]

[00:00:12] Daniel Glaser: Yes, indeed. Yes, Uppsala, Sweden. I’m happy to be with you, Tilman.

The death star speed dating test

[00:00:18] Tilman Versch: I hope we’re having a quite interesting interview. Before I show the disclaimer and the message from our sponsor, MITIMCo, I will start with a small question. I ask you to imagine that you are at the speed dating, where on the one table there is a company you want to invest in, and you have 30 seconds to say hello and who you are. You think about investing long term and staying in a relationship with them. On the next table, you will meet an investor. You think that might be quite interesting for your stock or fund. You have 30 seconds.

[00:01:02] Daniel Glaser: [chuckles]

[00:01:02] Tilman Versch: I will invite you to start saying hello to the company you invested in, and if the 30 seconds are over, I will let The Death Star play.

[Death Star sound plays]

[00:01:12] Daniel Glaser: We’re doing 30 seconds with the company and 30 with the investor? Okay.

[00:01:19] Tilman Versch: Let’s start with the company.

[00:01:25] Daniel Glaser: Yes, hello. We are an investment company, which, we run on our own money, so we are going to be with you long term. We are always interested in what your plans are over the next two to five years, and we will be helpful in any way we can. Yes, also-

[Death Star sound plays]

[00:01:53] Daniel Glaser: -see my looks- [chuckles]

[00:01:54] Tilman Versch: Now, you are at the investor.

[00:01:57] Daniel Glaser: Yes. [chuckles] To investors we are speed dating– Yes, sorry. It’s very unlikely that we will maintain our returns so far. We are very likely to, at some point, have a big drop, top to bottom. That said, me and my family have all our liquid net worth invested in this company and in the same strategy.

To investors who are speed dating– Yes, sorry. It’s very unlikely that we will maintain our returns so far. We are very likely to, at some point, have a big drop, top to bottom. That said, me and my family have all our liquid net worth invested in this company and in the same strategy.

[Death Star sound plays]

[00:02:26] Tilman Versch: Thank you.

[00:02:27] Daniel Glaser: [laughs]

[00:02:27] Tilman Versch: You have done the Death Star test very well.

[00:02:31] Daniel Glaser: [laughs]

[00:02:31] Tilman Versch: I want to give you some time to relax because it was kind of a challenge…

[00:02:35] Daniel Glaser: It was a tough starting question, yes.

[00:02:37] Tilman Versch: -and start with the disclaimer and our sponsor message. Here we go. As always, here’s the disclaimer. You will find it, also, linked below. It says, do your own work. All we are doing here is a qualified, and hopefully, fun talk. It’s no advice and no recommendation. Always do your own work. I also want to drop the message of our sponsor here. It’s MITIMCo. MITIMCo is supporting this episode.

This episode of Good Investing TV is brought to you by MIT Investment Management Company. MITIMCo manages the financial assets of MIT through partnerships with talented investment managers all over the world. MITIMCo is eager to connect with emerging fund managers. They invest alongside young and unconventional investment firms, and bringing resources and a creative perspective to the fund management journey. Whether you’re a one-person shop just getting started or a team of investors building something unconventional, MITIMCo would love to hear from you.  No firm is too small, too early, or too un-institutional.  You can drop them a line at partner@mitimco.org and visit their site: mitimco.org/emergingmanagers.

The ones watching this video on YouTube already see the site. I also will link it below in the shownotes of the podcast as well, so you can easily reach out to them and say hello.

Daniel’s “role models”

Thank you, Daniel. I hope you had time to relax, and maybe let’s start with your background in your room. Who are these guys behind you on the wall, or there’s also a woman, and why do they inspire you?

[00:04:20] Daniel Glaser: Yes, there’s two women. They might not have so much to do with my background, actually, but it was a fun thing to have some good company here. I think what all of these people behind have done is they have really gone their own way. They are very thoughtful, all of them. I guess most of them are geniuses, too, [laughs] in their own ways. You might see the two women might be interesting to lift out. One is Jacinda Ardern, Prime Minister of New Zealand, a very young one. There’s also J.K. Rowling, the one that wrote the books about Harry Potter. She came from almost nothing. I think she said she was as poor as one can be without being homeless and was writing the books. The rest is history, I guess.

In terms of my background, you know 12 years ago, I did not know anything about investing. I didn’t know what a balance sheet was. I didn’t know, essentially, what revenue was. I had a basic understanding that companies sold things. They had a cost of doing that. Then they turned out to profit. That’s about the extent of it.

Books & investing

[00:06:01] Tilman Versch: Did the books help you to get a deeper understanding of investing?

[00:06:06] Daniel Glaser: Oh, a lot. I think it’s interesting to understand where I come from. My background is in Engineering Physics with a specialization in optimization. So, mathematics, really. At the end there, I was optimizing cancer treatment for radiation. Radiation treatment for cancer patients, sorry, and also in elite sports. I have been in the Swedish national team playing badminton for probably 12 or 13 years before that. When I had my first bout into investing, I’ve always liked to walk around in libraries. When we would go abroad with my family, Mom and Dad would probably want to do some sightseeing, see some important monuments.

My background is in Engineering Physics with a specialization in optimization. So, mathematics, really. At the end there, I was optimizing cancer treatment for radiation.

I’d be much happier to go to the libraries. I was like, “Let’s go by a bookstore.” About 2008 or so, with no idea about the financial crisis by the way, I was walking around the bookstore and I didn’t really know what to do with my life, to be honest with you. [chuckles] It was this book that said ‘the Business of life’. Snowball, the Alice Schroeder * book about Buffett. I picked that up and I didn’t think too highly of the financial industry at that time. In this book, you could really do good in this industry and it really clicked with me. This was somewhere around 2008, 2009, I’m not sure. For some reason, I put the book down, I felt it really clicked. I put the book down, and I can’t tell you what I did for two years, probably.

I didn’t do anything investment-related. I met my wife, so maybe that was why I never really– I was newly in love and all that. Maybe that was it. A few years later, a friend of mine came to me and he said, “Hey, you’re good with math. Why don’t you help me look at this company?” It was a situation where Company A was owning shares in Company B, basically. Company B’s shares had gone up a lot so they were actually worth more than company A’s total market cap at the time. This is exactly what I read about in Snowball*, Security Analysis, and so on. I went home, did the work, and we ended up investing and within five, six months, it had worked out. I was like, “This can be done.” From then on, I started dabbling, doing all kinds of mistakes you can do that many of us do when we start out. About—

Daniel’s favorite mistakes

[00:09:29] Tilman Versch: What was your favorite mistake?

[00:09:31] Daniel Glaser: [laughs]

[00:09:31] Tilman Versch: Where you think, “It’s so much worth, this mistake, that I really like — I did it.”

[00:09:40] Daniel Glaser: Yes. I can’t point to one which was extremely costly, but I can point to one which was so extremely embarrassing, now, afterwards. It was actually an actual coal mine in Mongolia, I think. [laughs] They had this good salesman as a CEO. It’s hard to think of something worse. These classic things like biotech, things which are hot. I did many of those mistakes, but for some reason, during those very first years, I also did a few good things. When we summed up the year, I realized that– One, perhaps the investment I was most confident in had actually done really well. It could be up 50%, but most of the others were so poor. We were basically break even. Those initial three years, I remember them pretty well because, at the end of three years, we were up about 3% or 4%, so about 0.8% compounded or so. That was good because considering how little I knew and how bad I was, that was a gift, like a free education basically.

I probably deserved to lose a lot more than we actually did. I think that one of the key moments there was in 2013. During these years, when I started looking for ways that would work, one– You’re looking at some studies. You’re reading all kinds of things. There was this one study that was very attractive to me and I felt, “Now, maybe I have it.” I realized that– the study was something about investing in stocks that would be included in an index or so, or something like that. I don’t remember the details, but basically, when you peeled the onion a little bit, you realized that that was only an effect of the financial crisis.

You realized the study was basically flawed. It was my final hope to find something that would work. After I realized that was completely not worth anything as well, I went back to this sort of boring portfolio that I was already managing, and I said, “Let’s try to aim for 15% a year.” That was the key thing, that I came to peace with, that there are no shortcuts. You just have to do the work. You have to understand more and more. Hopefully, you’ll do well doing it.

That was the key thing, that I came to peace with, that there are no shortcuts. You just have to do the work. You have to understand more and more. Hopefully, you’ll do well doing it.

Going the long way

[00:12:51] Tilman Versch: It’s interesting that you’re saying that there are no shortcuts. Are there other topics where you had to learn to go the long way as well in your journey into investing?

Elite sports are pretty much the same. At the end of the day, the ones you see winning tournaments, winning championships, are usually the ones that stay the course. There is always 10, 15 years probably behind every championship.

[00:13:07] Daniel Glaser: Elite sports is pretty much the same. At the end of the day, the ones that remain, the ones you see winning tournaments, winning championships, are usually the ones that stay the course. There is always 10, 15 years probably behind every championship, behind every– That was certainly one point. I don’t know, I came in with this beginner’s mind, and I figured that there should be some ways to do this. It feels like there are, maybe not shortcuts, but methods.

At the end of the day, today, I also have a method, of course, but there’s no magic pill. It’s really just basic work. If you do it long enough, you will become a little bit better at it over time. That is a big insight, actually, I think, because it’s easy to try to look for all these technical things, short-term thinking, really, which is doable for some, but extraordinary hard to do successfully for most.

His three favorite books

[00:14:43] Tilman Versch: With books, you have a certain chance to get quicker and with a smaller budget to the wisdom of other people. I asked you before about your three favorite books. Maybe you can show them, introduce to the audience because you have some behind you.

[00:15:02] Daniel Glaser: Three favorites are really hard. Hang on a second. Let me pick up these three.

[00:15:18] Tilman Versch: If you send me the list of the others, I can also put them in the transcript (Daniel’s Good Read list).

[00:15:23] Daniel Glaser: Sure, no problem. I think this is a great one, The Captain Class *. The author is Sam Walker. He did an enormously comprehensive study of all the best sports teams of all time and tried to figure the red thread between them. Seagull *, about a seagull that doesn’t accept being ordinary but wants to try his or her wings. Then, in terms of investing, this is one book– I don’t know if you can see it. It’s Pat Dorsey’s Little Book *.

Because most of your viewers, I think, know all the classic investment books, but what this one did was it really helped me understand moats, so switching costs, network effects in a completely different way than I had before, and maybe in a bit modern way because many of us might come from where a moat is a low-cost producer or some brand or something. This really will teach you a lot about the switching costs and network effects’ aspects which I think are the best moats a company can have, really.

Founding River Oak

[00:16:51] Tilman Versch: Interesting. I didn’t have that pick on my list. It’s a takeaway from this interview, for sure, to look into this book. What did you lead to found River Oak? Yes, that’s the question.

[00:17:13] Daniel Glaser: I had a key decision around 2015. My optimization work I did in Florida, my supervisor there became one of my main role models in terms of my professional life. He started a company, and they listed on the Nasdaq in 2016. This was a bit before that, but I thought like, “Should I go work for him?” I was also working with my dad which was another role model, of course. I had another job which was my actual job at an institution, Karolinska in Stockholm, not investment-related. I did the investing on the side, basically. Despite this, I had Jim [James Dempsey, founder of ViewRay, Inc.] which was one role model and my dad which was another. I couldn’t do anything but– What I wanted to do was invest.

It took some time to be okay with that, to go in that direction. I saw this talk, I think it was Jeff Bezos, and he said that, “You don’t choose your passions, your passions choose you.” Once I heard that, I felt, “Now I have a free line to go wherever I want.” That was the decision. I said, “I have to do what I love doing.” From then on, I did it. Basically, the idea with River Oak, it really started January 1st, 2013.

[00:18:54] Tilman Versch: The person you mentioned in Florida was the person who asked you about the stock where you finally invested or was this another…?

[00:19:01] Daniel Glaser: No.

[00:19:03] Tilman Versch: To connect the dots?

[00:19:04] Daniel Glaser: The algorithm I wrote as my Master’s thesis, it went into his company. It was at the start of his company. He founded this company, my supervisor, ViewRay it’s called, in 2006. Then, it was listed in 2016. We had great fun. When we were building this algorithm, we were having many late nights in Florida. I was there by myself, feeling freedom. We were having a great time. He just founded the company. Since then, I had it in my mind because he asked me to stay to work at the company, but I wanted to go back. Since then, I’d always had it in my mind, “Maybe I should go work for him.”

Around that time, say 2015, I decided I’m going to do investing full-time. River Oak really started in 2013. January 1st, 2013. My mom was my first and only seed investor. It was 400,000 from her and 420,000 from me. It compounded at a decent rate and some people, just friends, started asking maybe this could be set up to do something, a company of it. It took some time but that was really the– I probably put 20 people up on the list, one email list, so I can send them results. I said, “2013, I’m going to publish results. I’m going to write about it.” Most of them probably went on the list to be kind to me, not because they were so interested, but that was the list that I sent.

In 2017, I basically said, “Let’s try to send it to these 20 people and see if anyone wants to found a company with me.” I remember sending it and I believed that– I told my wife that, “Let’s hope one is interested, at least. [chuckles] Probably not but we’ll see.” 10 of them ended up being interested, so I have 10 co-founders at River Oak. I went around Uppsala and Stockholm and we all signed the founding documents. I went around to each and every one of them for two days there. Once you made a decision that you really want to do this, I could’ve continued doing it just in the family office structure, but I felt it’s something that’s very scalable, so why not have many other people come along?

The return in the first years

[00:22:02] Tilman Versch: What have been your decent returns in the first period before founding it as a more formal structure?

[00:22:10] Daniel Glaser: It was above 30, below 40, I think. Yes, between 30 and 40, annualized, for those four years or so.

[00:22:27] Tilman Versch: That’s a good return.

[00:22:29] Daniel Glaser: It is.

His investment structures

[00:22:31] Tilman Versch: How did you think about setting up the structure, because you have this interesting structure, the fund, you do capital raises. Maybe you can talk more about this. Is this a special structure to Sweden?

It’s a regular company, basically, and everyone is a shareholder, so there is no function where you have– In a big downturn like during COVID, at the start of COVID, where many funds would have many huge redemptions, there’s no redemption function in that way.

[00:22:45] Daniel Glaser: I’m not sure. I think you can do similar things in other– I would think. It’s a regular company, basically, and everyone is a shareholder, so there is no function where you have– In a big downturn like during COVID, at the start of COVID, where many funds would have huge redemptions, there’s no redemption function in that way. You need to sell to another shareholder. Our capital is our capital, and we can use it to be very long-term to invest as we please in listed companies, in private companies. I just thought there’s many advantages of doing it this way.

There are also one or two fund structures which is pretty uncomplicated in Sweden but then you need to go to professional investors, which might be difficult to start out doing. I also thought it’d be fun for them to feel that they’re shareholders. I have bought my shares at the same price that they have bought their shares. We’re co-owners and some of them will come with an idea from time to time. It becomes more of a fun, social thing, too. In terms of a fund, I would just have, perhaps, many people that I didn’t know who they were, so that didn’t feel really meaningful to me to do it like that.

The special share class

[00:24:26] Tilman Versch: In your structure, you have a special share class or…?

[00:24:32] Daniel Glaser: Yes, we have two share classes. I have A shares, so they have higher voting power at this point. That’s the only difference right now. I want to be able to put in a veto if everyone wants to invest in this coal mine in Mongolia or [chuckles] whatever it might be. Something that is very fashionable but not something where I see much investment merit.

The investment landscape in the Nordics

[00:25:03] Tilman Versch: You already talked about this in your letters and I find it a very interesting point. Compared to the structure of investment vehicles in the Nordics, you just described yourself as being different. How do you see yourself in relation to other offerings?

[00:25:22] Daniel Glaser: I think there are quite a few really good investment companies, holding companies in Sweden but they are in the billions, most of them. They are 2 billion, 5 billion, 10 billion, 100 billion even with Gustaf Douglas perhaps. They might actually be quite similar although, I think, most of them have fewer shareholders. We also have Spiltan Aktiefond Investmentbolag which have a few thousand shareholders but that would, perhaps, be the most similar in terms of structure.

If you compare us to the funds, we’re just completely different because they have rules of not being able to have a weight higher than 8%. I don’t know the rules but it’s complicated and a lot of work, a lot of time, seems to go to other things than doing the actual work. I think it’s just very, very different, from A to Z. We’re doing everything different. We do have some similarities in that we invest in publicly listed companies but that’s about the extent of it for most of them. There are exceptions which might be more similar to us, but yes.

If you compare us to the funds, we’re just completely different because they have rules on not being able to have a weight higher than 8%.

The perception of the Nordics

[00:26:45] Tilman Versch: I’ve already mentioned the Nordics. I want to have the chance to ask you a bit about some insights about the Nordics. Maybe I want to start with the question, what people usually get wrong about the Nordics, and that’s the universe you’re mostly investing in?

[00:27:07] Daniel Glaser: One thing they get wrong about Nordics? It’s a bit hard for me to speak about the whole Nordics but maybe… they think it’s Switzerland, Sweden. [chuckles] Many US people think Sweden is Switzerland. But, at least in my community, I think they have a pretty decent understanding of the Nordics. I think, in some cases, Americans come in and they might be– Americans are very ambitious while Swedes are a bit more less ambitious by nature. It’s a very cultural thing too. They might come in and say, “You need to–” They might have opinions about how a company should be run and they might say, “Let’s go faster. Let’s do it like we do it in Silicon Valley,” et cetera. That might not always be the best recipe for Swedish companies.

I think we have a few exceptions, which are– Well, we have many companies which are very ambitious but perhaps a few famous ones like Spotify, Klarna, iZettle which really fit the mold when it comes to going really fast, innovating, being very ambitious, and try to be world-leading, basically. We don’t have many like that and it’s not something that comes naturally. In the sense I think it’s just important for Americans when they– Not just Americans but, generally, when people come to invest in the Nordics, they have to realize that there are cultural factors which might not make it suitable– The Silicon Valley blueprint might not work everywhere for everyone.

Some would argue that it’s not working for some Silicon Valley companies too, I think. We only hear about the great ones that come out of there, so for many, that doesn’t work either. I don’t know if that’s something they really get wrong. I actually think most have a pretty good view and understanding of the Nordics as, generally, a very well-functioning part of the world.

I actually think most have a pretty good view and understanding of the Nordics as, generally, a very well-functioning part of the world.

The difference between the Nordic markets

[00:29:41] Tilman Versch: What’s the difference between the different markets in the Nordics in your eyes if you compare the Finnish market with the Swedish market? The language is one big difference.

[00:29:52] Daniel Glaser: I think the Finnish market is less well-known. Many companies there are less well-known. There’s 10 million people in Sweden and in Norway, Denmark, and Finland, there’s about 5 million. Sweden is twice the size. It feels like the markets are more analyzed here. I think maybe you’ll be able to find a few pieces of gold in Finland or something like that. There might be a higher chance for it in some cases where people just don’t know about it.

There are more companies, I think, generally, in Sweden, which has come a far way than, for example, Finland or Denmark. There’s no Spotify or Klarna from the others that I’m aware of, at least. They’re coming. They’re coming now, though.

It’s a good space because it’s so stable. The population here is stable. Political environment is very stable. Our preferred geographies are the Nordics, and the US has been historically, but we’re also doing some in China and in South America. This is the most stable and, of course, the one I know the most. It’s a huge advantage of investing on your home-court as well.

It’s a good space because it’s so stable. The population here is stable. Political environment is very stable.

[00:31:39] Tilman Versch: Which companies or patterns are you looking at in the Nordics – your home-court?

[00:31:44] Daniel Glaser: Since about five years ago, we have been almost exclusively in software companies, online-based companies. Usually what I want to see is some strong secular tailwind. No special situations, no complicated things, no sum of the parts situations, no shorting, no leverage, nothing like that. Also, areas where– I think this is an underestimated thing to keep in mind, areas which I find really interesting and fun. I will say no to a company which I am basically sure it’s going to be a good investment, but I just don’t click with it. I can’t relate to it, for example. I’d say those are the areas we have been in, and it might sound like only software and online-based but that’s a pretty broad area. There are many companies that go under that.

No special situations, no complicated things, no sum of the parts situations, no shorting, no leverage, nothing like that.

Investing outside the home-court & StoneCo

[00:33:02] Tilman Versch: If you’re investing in China or South America, you’re losing your home-court competitive advantage. How are you going about investing there compared to the way you approach investing in the Nordics?

[00:33:17] Daniel Glaser: It’s a great question. You just have to accept that you do have an information disadvantage when you invest in China or in South America. I have a friend from China, a great investor, and probably one of the best investors in China there is. He asked me about this, and he specifically said, “We do two, three calls every day. We know a lot of industry experts, we know a lot of people at the companies, and we still miss a lot of things.” [chuckles] That sort of– we might have been going more and more toward China and I was expecting us to be more in China by now, but I realized over the years that the only thing you can do there is very well-established companies which have a very broad market, a huge opportunity and you don’t need to know all the details.

I was expecting us to be more in China by now, but I realized over the years that the only thing you can do there is very well-established companies which have a very broad market, a huge opportunity and you don’t need to know all the details.

In Brazil, for example, there’s an interesting situation there with the payments market. There are a few new companies now, StoneCo, PagSeguro and there’s also a private company, NuBank. It’s interesting there because in 2010, this was a duopoly, basically, between two large banks. One had an exclusivity agreement with Visa. The other one had an exclusivity agreement with MasterCard. If you wanted to pay with MasterCard, you needed to go through one of them, and if you wanted to pay with Visa, you need to go through the other.

[stockdio-historical-chart symbol=”STNE” stockExchange=”NYSENasdaq” width=”580″ height=”380″ motif=”financial” palette=”financial-light” font=”Lato” days=”3650″]

Stores and restaurants would have two machines. And I guess some of them might have had only one machine. If you came in with a Visa card in the wrong restaurant, you might have not been able to pay, I guess. They deregulated that. Not only were there these machines, which you needed to have two, but also the interest rates and the take rates were enormously high. I’ve heard 10%. There is one I read– a former employee at StoneCo said that “I was trying to help a client find their actual take rate in the dashboard of this old incumbent large banks, and it was practically impossible.” What StoneCo did and, to some extent, PagSeguro too, I think, they came in, and they said, “We’re going to be hugely transparent. We’re going to have a dashboard. We’re going to show you your take rate front and center. There’s no way you can change that.”

The larger banks, they were actually increasing the rates [chuckles] until the customer noticed. Then, they were like, “Yes, sorry,” and then they took them down again. It was like very low-hanging fruit to come in and care a little bit about the customers. StoneCo has the take rate, I think, just below 2% and it’s founded by serial entrepreneurs. They know the pain points of– with the larger banks, you will have to sit in line for two hours, three hours to fix a simple customer support errand. What StoneCo did was, “We’re going to try to answer it within minutes.” They measure themselves on metrics like that.

I think when I found out about it, I think it was in 2018, or 2019, I can’t really remember. They had a market share of 3%, 4%, perhaps. Of course, nowadays, all acquirers accept Visa, MasterCard, American Express, et cetera. It was also at a valuation of around 6 billion or so. I don’t need to know that much more than that. They were taking market share hand over fist and it was very simple to understand why once you had done some work there. It was almost impossible to see how the banks– how many examples do you know of where you have the incumbents with a legacy technology, with a culture that says, “We’re going to raise rates. We’re not going to really care about the customers. They have to use us.”

That would be an example, whether it’s StoneCo or PagSeguro, the opportunity is just so huge, and you need to have some model, of course, about the valuation. I don’t need to know all details there. That would be the typical situation where I’m comfortable investing globally. In China, for example, cloud adoption, e-commerce, it’s going much faster in China. The opportunity, of course, there as well, is huge. There are probably a few companies on that theme in China, which I think are investable. Of course, I’m not going to invest in something that’s, say, a billion kronor which we might do here, so a company with a 1 billion market cap in the Nordics, that’s fully investable. That’s probably not going to be investable in China.

A company with a 1 billion market cap in the Nordics, that’s fully investable. That’s probably not going to be investable in China.

The role of the past in his investing approach

[00:39:32] Tilman Versch: What role does the past play in the way you analyze companies because from what you told till now, it sounds you’re a bit entrepreneurial investor?

I really want to invest in companies where I click with their offering, with their product. Otherwise, it’s not very interesting.

[00:39:43] Daniel Glaser: I think we have a particularly soft spot for companies that enable entrepreneurship. StoneCo is a great example. Fortnox in Sweden is another great example of that. I think I personally have a soft spot, after all, entrepreneurship, and small and medium-sized companies, that’s the ones that get our economies growing, the most part of it. I don’t remember what the percentage is but it’s probably more than 50% of growth. I shouldn’t quote the numbers but those are the drivers. With some entrepreneurial background myself, I think it’s natural to– As I said, I really want to invest in companies where I click with their offering, with their product. Otherwise, it’s not very interesting. There are many ways to invest and make a lot of money in all kinds of companies, but many are not interesting to us simply because of that.

Regarding the past, the past for me, it’s a data point but not much more than that. Of course, a good record in the past oftentimes means a good record in the future as well. The key in investing, of course, is there’s almost no value in the past. Everyone can see the past. It’s readily available for us in screeners, huge institutions, banks, they have access to loads more data than we can have. Everything I do is completely focused on the future and preferably the next two to five years. That’s really the basis for all investing. Of course, the past is a good data point. In some cases, a very good data point. But when it’s obvious to everyone, there’s usually not much value there to be had.

Of course, the past is a good data point. In some cases, a very good data point. But when it’s obvious to everyone, there’s usually not much value there to be had.

Selling Amazon for more attractive small caps

[00:42:02] Tilman Versch: I think in one of your letters, you said you sold Amazon because you saw the advantage in small caps. Do you see this opportunity that there’s more advantage in small caps, as a rule, today, or did it change that you also see this big opportunity in large caps like Amazon?

[00:42:28] Daniel Glaser: I see it as a general rule that small caps and mid-caps are going to be much more attractive as investments. Now, this has not always been the case for the past five years, I’d say, pretty surprisingly, for many. I remember when Apple was at an 800 billion market cap and it was really hard to see them double that value because you need to add 1 trillion of value, but it happened. I think that’s been surprising to me.

I saw their advantages. I just felt that– so when we sold Amazon in 2017 and it was right after River Oak had started, I just felt that we’re going to have a bigger edge in smaller companies, and we don’t really need to fight in that pit with the 10 largest companies in the world.

I love most of them, to be honest. Amazon is great, obviously, and they are fully investable. It just has happened that after that one we haven’t invested in the really huge ones, but it’s fully open to do that. I think that should rather be regarded as a mistake than anything else, perhaps, in the case of Amazon. We will tend to be focused in small and mid-caps, for sure. We will also have the occasional large cap.

[00:44:21] Tilman Versch: Interesting.

[00:44:22] Daniel Glaser: I’m not against that at all. It’s just that if you look at the case of Amazon, I think it was– I don’t remember the exact market cap, but it’s probably tripled since then or so. The thing is that the execution needed for that triple, I don’t think many could see that. The execution needed for a triple in a small cap with a 1 billion market cap, of course, might not require as much. I think in the case of Amazon, it’s probably a unique situation in the history of business.

Managing winners

[00:45:11] Tilman Versch: With your return and what you told about certain companies; you have a certain talent to pick some winners in your portfolio. How are you going about winners? When do you think about selling them? Do you decide to double down on winners and sell losers or is there any framework you’re dealing with winners?

Not really, in the sense that when I invest in something, it’s always a matter of what do I think their earnings power is in two to five years? How does the competitive situation look, the moat, the runway? Let’s say a few years later, and that particular company is up 200%, I will do the exact same analysis three years later.

[00:45:35] Daniel Glaser: Not really, in the sense that when I invest in something, it’s always a matter of what do I think their earnings power is in two to five years? How does the competitive situation look, the moat, the runway? Let’s say a few years later, and that particular company is up 200%, I will do the exact same analysis three years later. I will say, “How does the situation look over the next two to five years? Moats. Is the competitive position better or worse? Will it last, will it erode?” Of course, there’s the valuation component as well but that’s taken into account exactly the same way, whether it’s a winner or a loser or something in between.

It doesn’t affect in any way. I’m just as likely to double down on a winner as doubling down on something that has done less well, and the same thing about selling. Now, I’d say we do not tend to sell often. It’s become less and less. I’d say, per year, we probably sell one or two, or at the most three companies. It’s usually a situation where we have found something more attractive, or just a mistake in the sense that what I believed has proven to be wrong for some reason. It might not mean that the investment merits look poor from this point, but I could sell if I misunderstood something, and that happens. It is boiled down to about one, two, or maybe three per year. Hopefully, that goes down even more, that’s preferable.

Of course, it comes to the question like, if you have good returns, and the valuations go up, at some point, the companies become too highly valued, and that’s true. Of course, there’s some price for all companies where we would sell out of valuation alone. I tend to think about that if you’re right about a company’s runway, about its competitive position, about its business, you can basically use– I get teased, because I’ve never used the DCF valuation method. I don’t think I even know how to do it, to be honest.

I get teased, because I’ve never used the DCF valuation method. I don’t think I even know how to do it, to be honest.

You can use the DCF. You can use something based on multiples, you know you think something is worth 20 times earnings, perhaps. You can use the second moon landing, and you’ll still end up with the fine result after a long enough time. The opposite is true, too. If you’re wrong about these things, if you’re wrong about the competitive position, if you’re wrong about the business and the culture there, no matter how great your valuation method is, even if it’s exactly right, you’re still not going to do very well.

I think, perhaps, Charlie Munger has put this really well. He basically said something along the lines of, “If you invest in a company with a 20% return on capital, even if you pay a high price, after a long enough time, you as an investor are going to end up with 20% returns as well. Conversely, if you invest in something with a 6% return on capital, no matter how cheap price you paid, if you paid a few times earnings, you’re still going to end up after a long enough time with about 6%.”

That’s the key, and I think while I might have come from a background, old value school if you want to call it that, you know Buffett, Graham of course. The valuation might have been the first thing I looked at, but around I would say 2015 that changed. What I do now is all the other things have to check out first, then you check the valuation. Of course, I want to be sure that it’s not something before I start and make a project out of it, I want to make sure that it’s not completely out there so that no matter how good the business is I’m not going to invest but, usually, that’s not the case and I think that’s the last thing when we make an investment that I look at.

The importance of good management

[00:50:57] Tilman Versch: You have Jeff Bezos behind you if I’m right with identifying these pictures and he’s one of the outstanding managers and the good managers. What role does management play in your process? Is it a bit like Rob Vinall who is also looking for the good managers?

[00:51:20] Daniel Glaser: It’s always great to have a great management team. It’s not necessary to do very well. I can segway a little bit into Fortnox, so this was an investment we made about five years ago. Since then, they’ve had five different CEOs, now we have the fifth. The company has done absolutely fantastic. The management is always great– it’s great if it’s great but it’s not the most important thing for me. It’s ahead of valuation but below competitive position, network effects, switching cost, that sort of thing, and the runway of the opportunity and demand. I mean, how sure am I about the future demand?

But it’s wonderful if you have someone like Bezos or what else do we have there, yes, Buffett on there. That’s great to have and I want to see, I want to have a CEO that is hungry, that is ambitious, that doesn’t– There are very few CEOs like Bezos but as long as they’re very hungry and they go their own way in their business, if they really understand this little small business here, there are many many ways to be a great CEO in my mind. It’s of course one factor out of many but not the most important one.

I want to have a CEO that is hungry, that is ambitious.

Fortnox

[00:53:14] Tilman Versch: You already mentioned Fortnox and we want to go deeper into this idea because you already told me in our pre-talk that it’s a quite interesting company and there’s also the story of holding, it is a quite interesting one so maybe we can start with what’s the business model and how did you get interested in this company and when?

[00:53:38] Daniel Glaser: Yes. It’s a bit of a coincidence how I got interested in it because, so they do cloud software for accounting, for sending invoices, for paying salaries, all things that a small business can want to do. I think there was one key, really key idea there. There was one key sentence in their annual report around 2014 or so. It said that in a big survey, they have found that out of all companies in Sweden, only 12% were using cloud software for accounting. 12%, and this was 2014 or ’15. I saw no reason why that wouldn’t be close to 100% at some point in the future.

There are about a million companies in Sweden. At the time, they had a little bit shy of 100,000 customers. It was clear to me that that 12% number would go up a lot. That was really the key thing. Then also, my wife started working with the software. I saw that and I could compare it to the competitors because, remember, this was 2015 and we’re not seeing the type of sales multiples we’re seeing today. At the time, Fortnox was considered enormously expensive, 8x sales. Today, some might say, 8x sales that’s not so much, right? For many different reasons and that’s a longer discussion.

I was paying 780 million or so for the whole business, so 8x sales. That was scary scary business, right? I had never at that point invested in anything close to that expensive, but the thing is it was 8x sales but really what I saw is in perhaps three years, the number of customers will double. The revenue per customer will go up 50% so you’d have revenues of 300 million in 2018.

But, basically, at the time, it had sales of 100 million. I was paying 780 million or so for the whole business, so 8x sales. That was scary scary business, right? I had never at that point invested in anything close to that expensive, but the thing is it was 8x sales but really what I saw is in perhaps three years, the number of customers will double. The revenue per customer will go up 50% so you’d have revenues of 300 million in 2018. I remember I thought it would make about 100 million of earnings that year, so three years out. I was really paying 8x earnings, I wasn’t paying 8x sales and now everyone would agree that if you’re paying 8x earnings for a company that’s growing like wildfire basically because of this underlying trend that it’s– the 12% was bound to go up basically.

Everyone would say yes of course if you had an average not-so-fast-growing stalwart company trading at 20x earnings or 25, everyone would say, “Yes, it’s enormously cheap, right? It should be trading a lot higher than the average stalwart company.” At the time, it was 8x sales and that was scary but the key there was to– and I might sound like it was easy but it wasn’t easy at all. The only reason you could do that is because the opportunity ahead and what do you believe the earnings will be. I think actually this year, they will probably have earnings of around 300 million so you were really paying 2.5x 2020 earnings back then.

The only reason you could do that is because the opportunity ahead and what do you believe the earnings will be. I think actually this year, they will probably have earnings of around 300 million so you were really paying 2.5x 2020 earnings back then.

And again, this goes back to if something is obvious to everyone, there’s not going to be much value there, so you want to avoid those situations as much as possible. If it’s extremely obvious, you want to find the reason why it’s obvious to you and not to anyone else, why do you think you have found it. There are millions of other smart people out there, what are you seeing that everyone else– usually, there is a good reason for something optically cheap because it’s obvious to everyone.

It was interesting in that way but what happened is right after the investment, so six months or so after they got an offer to be acquired by their main competitor Visma at about 1.4 billion total enterprise value. You had a situation where they were basically break-even at this point. Very little earnings at this point. The board goes out and recommends the offer as being a very good offer. The main shareholder sends a differing view letter out to everyone and says, this is just about when earnings are going to start to move up a lot and he gave a decent case for it which the board didn’t at all. The board basically said that it’s nice because the offer is a premium to the last 30 days or whatever, 60 days. We also got a fairness opinion. I asked to see that fairness opinion and they weren’t able to show it, but I doubt there was very much in it.

They did pay like 5 million for it. And at the time, remember, this company basically had no earnings so it had maybe a run rate of 10 or 15 or 20 million so a third of that they paid in this fairness opinion, paid some lawyers to check the deal and remember, this was 1.4 billion that would have gone to Visma. Today, I think the market cap is probably above 25 billion. They almost gave away, 25 billion or so to the largest competitor, instead of all these small shareholders. What happened is that the offer went through, shareholders voted it through by 70% or so. Normally, you have a higher percentage than that, but the largest owner and a few other large owners also said no. 30% said no, but shareholders voted it through. Then about two months later, the Swedish Competitive Authority nixed the deal.

What happened then was the stock was trading thereabouts at 23 and the offer was 24. There was a lot of foreign arbitrage funds I’ve heard, that were looking for this one kronor bounce if the offer went through at 24. On the day that the offer was declined by the Competitive Authority, the stock went back down to our initial purchase price of around 15 like in a day. We got to buy back at that price. We had sold at 23 because I didn’t want to be a minority shareholder under this unlisted Visma company. They said that they would go through with the offer if 51% of shareholders accepted it.

You could have a situation where you were there as a minority shareholder, owning your shares with no influence. You’re in the hands of Visma basically. We were able to sell it at 23. It went down back to the initial purchase price. From there, it’s done what it’s done. Basically, if you look at it today, that board as I said, almost gave away 25 billion. Luckily, the Competitive Authority helped us, and I guess should be a hero for all small Swedish shareholders, which I think there were many of that we’re able to take advantage.

The change in Fortnox’ s perception

[01:02:32] Tilman Versch: After this interesting twist and turns story, if you’re looking back, how did the perception of Fortnox change? Because, at this time, they were some not profitable company?

[01:02:48] Daniel Glaser: They had just turned profitable, but it was in probably millions, at the most at 20 million run rate or so. I don’t really know how the perception was before 2015. My sense is that it was always very highly valued, like at a high sales multiple, one of the highest but it was scary for people to look at those things at that time, at least in a very different way as what it is today. I think, at the end of the day, Sweden– we don’t have thousands of companies like that. We don’t have hundreds of companies like that.

I think what investors realized is if you have a company that every quarter delivers, like that, no sign in a decrease in the growth, customers are running over to become users and I can’t say if it was 2016 and ’17, or ’18 but at some point, it was like, this is a very, very different company, and it certainly deserves a premium.

I think what investors realized is if you have a company that every quarter delivers, like that, no sign in a decrease in the growth, customers are running over to become users and I can’t say if it was 2016 and ’17, or ’18 but at some point, it was like, this is a very, very different company, and it certainly deserves a premium. I’m not one to say whether it deserves the type of premium it currently has but it certainly deserves a high premium to– not only the average company but the really good companies and great companies as well, because it’s hard to think of companies which have a higher switching cost. You’re very unlikely to change an accounting software.

The network effect is great because they are selling through a lot of accounting agencies. They have the 12 largest accounting agencies as resellers, basically, and a lot of other accounting agencies as well, which resell for them. The more that use it, the more likely it is– so when we started River Oak in 2017, and there was another company we started in 2015, I didn’t really have the choice. It was basically the accounting consultants said, “Yes, here’s the accounting software. Let’s go.” It’s like, “Okay, great.” It costs 99 a month for the accounting service. Another 99– This is Kroner, so €10.

[01:05:20] Tilman Versch: €10.

[01:05:21] Daniel Glaser: €10.

[01:05:21] Tilman Versch: I was just like, “What?’

Consumer surplus

[01:05:25] Daniel Glaser: €10 for the accounting, €10 for invoicing and this is all integrated. When you have an invoice, you just book it. It’s already booked. You’re never going to switch because of that, the price or convenience and all the consultants know it. Not only that, but I think– One thing that I always look for in all investments is something I read in one of Steven Pinker’s books, so about consumer surplus. Think about your washing machine.

Think about Google. We’re not paying anything for it. If I said, “Tilman, I’m going to take away Google for you, how much do I have to pay you for not ever using Google?” It would be in the hundreds of thousands and for companies, it would be in the millions. There’s a huge, huge consumer surplus in terms of the value they get versus the price.

You might have paid €500 for a washing machine. Let’s say €500. Now, if I came to you, and I said, “Tilman, I’m going to take away your washing machine. How much do I have to pay you for you to be without your washing machine the rest of your life?” It will not be €500. You’d probably demand €100,000 or you wouldn’t do it. The same is true– think about Google. We’re not paying anything for it. If I said, “Tilman, I’m going to take away Google for you, how much do I have to pay you for not ever using Google?” It would be in the hundreds of thousands and for companies, it would be in the millions. There’s a huge, huge consumer surplus in terms of the value they get versus the price.

Of course, this was really the case here as well at Fortnox because consumer surplus there is like, they could probably easily raise prices 30%, 50%, 100% over time, with almost no churn for the simple reason that it’s not worth the hassle to switch. There’s already such a huge value there. Those were the main things.

I think more and more people have realized that over the years, and it has become repriced, not only in terms of earnings having gone from 0 to 300 million but the premium has gone up a lot as well because people realize the advantage of having 30%, 40% of the small companies in Sweden and cross-selling all that, and the stickiness of those customers as well and great company too, like very entrepreneurial culture. They’ve done a phenomenal job. It’s really fun to be a shareholder with such a company in many ways.

The lessons of the Fortnox investment

[01:08:24] Tilman Versch: In the story, you told me this also, your younger you that’s a bit shy investing in such expensive companies and made the first step into this world of the higher-quality companies with great growth. What enabled the investment in Fortnox for you? Were you able to invest in other companies that have the same opportunity set?

I think I credit Pat Dorsey and his book actually for a lot of the Fortnox investment and being able to hold it because it was a key, and it’s always in investing and in anything else in life I think, when you do something and you see that it works, you dare to do it the next time.

[01:08:52] Daniel Glaser: I think I credit Pat Dorsey and his book actually for a lot of the Fortnox investment and being able to hold it because it was a key, and it’s always in investing and in anything else in life I think, when you do something and you see that it works, you dare to do it the next time. If you do a public talk, and you do it once and it’s really scary, perhaps a few times or many times, but at least you have done it a few times and you know that as long as you’re focused on this and this, it will work. I think the same was true here because it was really simple if you looked two, three, or four years out.

There were no crazy assumptions or difficult assumptions even. I think anyone could have done it. I think most were looking at perhaps the next quarter the next year, and the sales multiple. The valuation based on the current year’s earnings, which is really irrelevant in fast-growing companies. I think that was a key moment because– it felt good too. As I said, there are so many reasons why it felt good, because the business risk is almost zero in such a company. If you’re paying five times earnings for something, you’re going to have a big business risk usually.

You want to sleep well. You want to feel good about your investments. You want to be able to look your kids in the eye and say, “We only invest in companies that I believe are doing good things and providing great value.”

It might not feel as good for many other ways. You want to sleep well. You want to feel good about your investments. You want to be able to look your kids in the eye and say, “We only invest in companies that I believe are doing good things and providing great value.” Typically avoiding those that charge you a 12% take rate or whatever it was in Brazil. It’s a combination of, seeing that it works, having all these variables, which I think carries stronger investment merits, like, very strong network effect, a very high switching cost, that carries more weight to me than paying eight times earnings, or five times earnings, or whatever it might be.

It took some time. I don’t want to say it was a simple transition in any way. To be clear, we do, of course, prefer the 5 or 8- or 12-times earnings if we have all these qualities that we want to have. I don’t have anything against that at all. It’s great if you can have it, but usually, you can’t. If you look at many of the largest success stories we have in the world today, look at Amazon, you look at Microsoft, you look at Google, you look at Netflix, there are very few moments over the past 10 years, where you’ve had a chance to buy them very, very cheap.

The risk is just as if you’re waiting for this big once-in-a-lifetime Black Swan, which really crashes the markets, the risk is that you’re going to wait until you have gray hairs, and your kids are all grown up and you’re about to thank you for yourself. It’s the one variable I would be more open-minded about, especially if you come from my background. Perhaps many of your viewers come from this background of, the Graham background, where you were really trying to do it quantitatively. There was a whole different business case back then to do something quantitatively because there you could have an informational edge if you just knew some data. This is not possible anymore.

I think to find a really good investment opportunity today, you really have to look for these things which are not obvious, which might sound extreme to many people, but which are actually not that strange, and you’re not making any crazy assumptions.

I think to find a really good investment opportunity today, you really have to look for these things which are not obvious, which might sound extreme to many people, but which are actually not that strange, and you’re not making any crazy assumptions. I’ll tell you one example I heard about COVID when it came. In the beginning, the number of cases was doubling like every two or three days. Everyone agreed that that was the case, and everyone agreed that we had x cases on say, March 15th. When you did the math, by April 15th, we would have millions and millions of cases. It was very simple math.

This was I think, what’s his name? Paul Graham. Graham of Y Combinator, he wrote something like this. This is exactly what happens when you tell a friend about this. If you tell them we have 100,000 cases today, they’re going to double every three days, and they all agree on those two points. But when you tell them, “Yes, so that results in 5 million cases on April 15th,” they’ll say, “No,” because it’s not intuitive. It’s not obvious for everyone. I don’t know if it was a great example but it’s certainly a case where it’s not obvious to everyone and there’s a lot of value to be had usually.

The change in Daniel’s investment toolbox and mental models

[01:15:12] Tilman Versch: You started with a Graham like toolbox of instruments and frameworks, and stuff like that. What kind of tools you’re not using anymore into thrown out of this toolbox you’re having now?

[01:15:31] Daniel Glaser: Well, I probably even had some rule that say, I’m never going to pay more than eight times this year’s earnings, which is really stupid to be honest, or next year’s earnings. It’s like those type of quantitative rules, those are definitely out. I’m not sure if I had one of those, but I probably did. That’s certainly one that’s out.

[01:16:02] Tilman Versch: In terms of mental models, or concepts, frameworks.

[01:16:07] Daniel Glaser: Yeah, but I think even with Graham, it’s really interesting, and perhaps not too many know this. He run a fund for 10 or 20 years. He had very good returns. At the end of it, of course, he made the investment in Geico, and the profits from Geico surpassed all the profits accumulated from all other investments combined. I think if there is one big takeaway from that, that’s it. You found one company like that, with this enormous opportunity, this enormous runway. I think he believed that he was paying a fairly high price. He still did it. I don’t know the background of any of it but you can’t argue with the results of it.

I really think that’s the case because so much work they put in and Buffett, I think, has said this, too. He was filling out the forms and checklists for three, four, five, six points which needed to be fulfilled, or else they wouldn’t make the investment. You contrast that with, there was once a company in Sweden and I sent the largest owner – this was Fortnox too actually. I sent him this great detailed valuation model like, I’d written a full-page and spent a few hours with the numbers like motivating all of it. I remember even saying something along the lines like when he responded, I was expecting, a few comments on three or four of the assumptions I had made. It was basically just like, “Yes, nice work. I think the earnings will go up a lot from here,” and that’s it.

You contrast that with there was once a company in Sweden and I sent the largest owner – this was Fortnox too actually. I sent him this great detailed valuation model like, I’d written a full-page and spent a few hours with the numbers like motivating all of it. I remember even saying something along the lines like when he responded, I was expecting, a few comments on three or four of the assumptions I had made. It was basically just like, “Yes, nice work. I think the earnings will go up a lot from here,” and that’s it.

Oftentimes, perhaps you don’t need to know that much more. I think that’s a big takeaway for me at least, don’t use those types of checklists, and very strict models in terms of being very computerized about it if you will, because every situation is different, and every company is different.

Some broad guidelines there as mental models is of course great to have but for me, personally, I don’t use any type of checklist in that way. Some would call it a checklist Does it have a big opportunity? Does it have a strong moat in terms of either switching costs or network effects? That’s some type of checklist too I guess, but it’s very uncomputerized, very bendy if you will.

I think that’s a big takeaway for me at least, don’t use those types of checklists, and very strict models in terms of being very computerized about it if you will, because every situation is different, and every company is different.

[01:19:12] Tilman Versch: I have the same structure and it’s more, having a set of questions you often ask but not a checklist and…

Sort of open-minded checklist I’d call it because it’s different even if you’re at a very similar company.

[01:19:21] Daniel Glaser: Sort of open-minded checklist I’d call it because it’s different even if you’re at a very similar company. The ones we have spoken about in Brazil or in Sweden, the checklists are going to be different just there. The overall things that we have spoken about competitive position, the opportunity, the runway, those are there. That’s my checklist, I guess.

River Oak Capital’s future

[01:20:00] Tilman Versch: You said you have this framework where you’re looking at the companies: “What happens with them in three to five years?” What would you say if I offer you a company called River Oak Capital with a manager you know, what would you say is the plan for the next three to five years and how would the structure evolve or change? What can we expect from this company?

I think, we’ve started something. I mentioned 2013, so it was 820,000 SEK, and it’s about 140 million SEK today. We probably raised around 45 million of that, 7 million was raised last week actually. It’s gone pretty fast to where we are today. We’re still tiny, I think in the big scheme of things, so there is a long runway for growth in that sense. 

[01:20:26] Daniel Glaser: I think, we’ve started something. I mentioned 2013, so it was 820,000 SEK, and it’s about 140 million SEK today. We probably raised around 45 million of that, 7 million was raised last week actually. It’s gone pretty fast to where we are today. We’re still tiny, I think in the big scheme of things, so there is a long runway for growth in that sense. I doubt that the structure will change much, there could be some parallel vehicle perhaps geared towards larger investors perhaps, and the two would cooperate, I think.

Mostly, it’s just keep having fun every day, keep improving and evolving every day and hopefully, investors are happy with the way it’s developed so far and hopefully, something similar can be attained over the next 5 to 10 years. There is no grand vision in terms of reaching a certain amount of assets. I don’t think that’s a very meaningful goal. You also want to be opportunistic in terms of opportunities that come up. It’s possible, certainly that we will do some private investments in small Nordic companies, but for now I think it’s mostly more of the same. I’m happy that we have investors from many countries now, even three continents. Hopefully, add one or two continents maybe.

[01:22:45] Tilman Versch: I hope the Arctic as well, at this point, then you would have six continents.

[01:22:53] Daniel Glaser: That would be something. I hope we can do a field trip there.

Opportunities for River Oak Capital

[01:23:00] Tilman Versch: I want to go with the last question to these optionality’s or these opportunities you’re seeing. You mentioned investing in Swedish, small, and mid-caps directly. What other opportunities are in your head?

[01:23:17] Daniel Glaser: We’re mainly focused on Nordics. I think we will continue to be focused on the Nordics. It’s certainly possible when the world opens up again, I was planning or planning to do a trip to China last year. Brazil is on the list too. Those are two interesting, very interesting geographies that I know somewhat now after a few years of studying them. When you become more familiar like that, it certainly opens up the door to do more there and there are loads of opportunities there, I’m sure.

Just simply because of the fact that the home-court advantage is so big after all, and probably, if you take all accumulated profits, since, over those past eight years, I will say that more than 50% have come from the Nordics for sure. It’s important to be humble about what led to our results so far. It wasn’t investing in any private companies, for example, unlisted ones in Sweden. The process there is completely different, of course. It wasn’t investing in other geographies, like say, Africa or Southeast Asia or what have you. It was really done in the Nordics primarily, and I think it’s important to realize that and keep that in mind.

Just simply because of the fact that the home-court advantage is so big after all, and probably, if you take all accumulated profits, since, over those past eight years, I will say that more than 50% have come from the Nordics for sure. It’s important to be humble about what led to our results so far.

Growing the team

[01:25:18] Tilman Versch: How do you think about growing your team or even making it a team?

[01:25:25] Daniel Glaser: I mean, I’ll be the first to hire a team, as soon as I saw that it would benefit shareholders, it would benefit our returns. It might be a one-man band in terms of the regular days in terms of employees at River Oak, but it’s really like every day I work with many other investors and friends that it almost feels like we’re working at the same company, even though they have their own vehicles and so forth. If you didn’t have that social aspect, I would hire someone tomorrow, without a doubt, because, yes, it’s a lot more fun.

I do think at the end of the research process, I like to say, like, when you find out about the company name, it’s a key moment of course, in the terms of making an investment, but it’s about 1% of the work. You have 99% of the work left to do yourself. When you do that with some of your friends, some of your colleagues, I do think at the end of the day, it’s great to have one decision maker in terms of how much do we allocate. It’s very difficult– let’s take you and me Tilman, we have different backgrounds, we have very different knowledge in terms of what industries we know perhaps.

It’s pretty difficult if you come with 50% of the portfolio, and I come with the other 50%, like: How do we allocate that? How do we come to agreement? I think there are a few cases where it’s been done, and it works very well. OceanLink in China is one I would mention that comes to mind. There are two people there that think very, very much alike, so I think then it can work but they also have some differences I think in terms of their personalities, which can be a great compliment, but I think it’s hard to make that work and make it work really well. At least I don’t know too many examples of it. But I’d love to do it, so I might, we’ll see.

An internship at River Oak Capital

[01:28:01] Tilman Versch: Are you taking interns?

[01:28:05] Daniel Glaser: Not so far. We have had the question up and it’s probably on me. We have a board, so we have discussed it. I took it upon me to look it up, but I haven’t gotten there yet. Thanks for reminding me.           

[01:28:29] Tilman Versch: Might be an opportunity also for an interested of you who made it till the end of this conversation to reach out to you if you’re okay with this.

[01:28:38] Daniel Glaser: Yes, for sure. I think preferably located here in Sweden.

[01:28:45] Tilman Versch: There’s an opportunity for the people who view this interview to the end. Do you want something to add for the end?

[01:28:54] Daniel Glaser: No, I mean, if it’s a good match, we’re absolutely open to doing that for sure. Good idea.

Love what you do

[01:29:09] Tilman Versch: Do you want to add something to the general conversation as well?

[01:29:15] Daniel Glaser: I don’t know. Are you going to– we started with your speed dating question. I have something to add here. If I look back at the key moments I’ve spoken to here, there was this key moment of stop taking shortcuts and the other key moment of like really doing what you love. I would say if you want to do something well in life and most of us want that, even some of us are more ambitious, some of us are less ambitious, but I think we all want to do our jobs well. The best way to do your job well is to really love what you do. You’re never going to be able to do great things in a job you don’t love. I think that’s something I’ve certainly taken away from life at this point and it keeps proving true over and over again. You see so many examples of it. Maybe that.

The best way to do your job well is to really love what you do. You’re never going to be able to do great things in a job you don’t love.

[01:30:43] Tilman Versch: That’s a good word for the end. Thank you very much for your time and thank you very much for the viewers taking the time to watch this video or this podcast. Thank you.

[01:30:54] Daniel Glaser: Thanks a lot, Tilman. It was a lot of fun. Anytime.

[01:30:56] Tilman Versch: Bye-bye to you.

[01:31:00] Daniel Glaser: Bye.

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