The interview was transcribed and adapted into an article by Sujan Lal Manandhar
Lockdown Economy: Interviews by think tank AlterContacts.org with real entrepreneurs sharing insights, challenges and successes during the COVID19 global pandemic to inspire, motivate and encourage other entrepreneurs around the world.
In this interview, we meet Yurop Shrestha, the Co-Founder of Snowball Capital, which is an investment firm in Nepal. Their investment philosophy is value-based, long term oriented and driven by rigorous research and common sense. We talked about how the lockdown impacted Snowball Capital and the Nepalese Stock Market in general. The lockdown actually gave them more time to work on aspects in their business that they could not before. They made multiple reports on the stock market. However, there were issues in marketing. Some major investors who were supposed to come on board their firm pulled out due to the lockdown. But they adopted the strategy of aggressively buying stocks even before the lockdown because they were positive that the people would adapt to the circumstances. Yurop hopes the stock market will stay high for the next few months.
Could you introduce us to Snowball Capital?
Yurop: Snowball Capital is an investment firm. We run one fund. We primarily invest in (Nepalese) equity markets. Currently, we only have four people in our team including the two co-founders. We are a private investment company so by law we are only allowed 100 shareholders. Therefore, our shareholders are our clients. Right now we have around 20 clients.
What kind of problems did your organization face during the lockdown?
Yurop: The lockdown was (somewhat) unexpected. Surprisingly, it did not bring a lot of problems. The stock market was pretty much closed. That was the biggest effect of the lockdown. It actually gave us time to look after things we could not before and become better investors. But we did face some issues. We have two important aspects in our firm, the first is an investment which generates the returns for our shareholders. The other is marketing to onboard more shareholders. The marketing side definitely took a hit. Some high net worth investors who were willing to join our firm pulled out due to the lockdown. However, it gave us time to publish more memos and marketing reports which we could distribute to potential investors. Overall it was a net positive for us.
What kind of strategies did you adopt on an investment front to better position your portfolio during the lockdown?
Yurop: As a firm, we believe that human behaviour is predictable. We know for a fact that human beings get used to things. We use the term ‘new normal’ a lot after certain incidents, good or bad. We talked about ‘New Nepal’ after the earthquake and now ‘new normal’ during COVID. We knew it was going to be hard for a few sectors but we were very optimistic that it would be temporary. So to talk about our strategies, we were quite aggressive in the sense that we started buying even before the lockdown. The stock market was down for a very brief amount of time after the lockdown. The fear of corona was very high back then when there were very few cases but now we are pretty much back to normal even though there are a lot of cases. That is the assumption we had and that is how we had positioned our portfolio.
Were there any strategies that did not work?
Yurop: I guess we were not as aggressive as we should have been. Our philosophy is based on the Buffett School of Investing. What he says is when everybody is really fearful, you should be really greedy. And when everybody is greedy, you should be fearful. We knew everybody was fearful and the prices were hitting rock bottom as well. We thought it would go down further. But people were not as scared as we thought. That is the mistake we made, we were cautiously optimistic while we should have been extremely aggressive.
How did your clients behave during the lockdown?
Yurop: People were not as scared as the media portrayed it. Yes, people were home and their daily business activities were affected. But people who had access to capital pre-COVID still had access to it and now at a cheaper rate. So when their business was going slow, I think a lot of people actually moved to the stock market. It makes sense with the extreme prices and the jump in the index we are seeing right now. I think it is partly attributed to that. My set of clients were steadfast. One potential client pulled out but the clients I had did not panic. Nobody wanted to sell, they were actually contemplating investing even more. That was a pleasant surprise. But that meant lesser opportunities for us. The more the people are fearful, the better it works out for us. The lockdown was not as bad as I expected it to be for the stock market.
What kind of strategies did your peers and other institutional investors adopt during the lockdown?
Yurop: The industry is transparent to a certain level. The public companies and public mutual funds report their activities every month. But you cannot find information about a lot of private funds, merchant banks and portfolio management companies unless you are talking to them directly or have invested in them. Some people I know started selling before the lockdown considering the effects COVID could have had. But judging by the market, very few people sold a lot. Trading activities were really low during the days the market was open. I guess some retail investors sold but besides a few of my peers, most of them stayed put. They were neither selling nor buying. The lockdown was not very eventful for the stock market.
Could you explain the cycle the Nepalese stock market goes through? Where was the cycle when the lockdown hit and how did it impact the cycle?
Yurop: Yes, the market mimics human behaviour and economic activities to a certain level. People say that the Nepalese market is different from other markets say India or America. But human beings everywhere are similar in terms of their nature, behaviour and the way they think. That is why the cycle is predictable. However, the timing of the cycle cannot be predicted. I am not claiming to be a market-timer but you know it will turn either for the better or worse. When everyone is scared, we tend to be scared and that’s when panic selling happens. Once you start incurring losses in the market, people start pulling out. Hence, when the capital does not flow in and you add the liquidity crunch and high-interest rates to it, people simply put their money in fixed deposits. That’s when the market goes down and it reaches a point when it’s too cheap. When it gets to a ridiculous level, some astute investor has to come in or there has to be a sudden burst of liquidity like now. Then people start buying and start making money. That’s when it becomes the talking point at cocktail parties and everybody wants to get in the market because they fear missing out. This brings in more capital. Again the prices rise to ridiculous levels. At that point, there needs to be a trigger like the interest rate going down or the loan demand decreasing and people start selling and the cycle goes on. Now addressing the lockdown, I think for the last few years there was a protracted bear market. The market needed to correct itself but then it stayed low for a bit too long. So it was time for the market to rise again. The lockdown interrupted it for a couple of months but now it is back up. We do not know how long it will stay up but what is certain is that what goes up must come down.
What kind of stocks were traded during the lockdown and after the lockdown?
Yurop: In the few weeks the market was open between the two lockdowns, we saw some selling but there was not much activity. The hotel stocks were beaten up pretty badly for about a week. But they bounced back and now they are at all-time highs. After the lockdown, we have seen movement in stocks that are thinly traded. That would be stocks of some commercial banks. The stock prices of hydropower projects and non-life insurance have seen an immense increase. Unless the loan demand comes back, the interest rate is going to stay low and the market is going to stay high. The stock market is a good place to be post lockdown.
How is your portfolio performing post lockdown?
Yurop: Everybody in the stock market has made money after the lockdown. My portfolio is doing well but that is no credit to us, that’s credited to the market. It did hold up in a bear market as well. It is more important for an investor to evaluate their performance during those times.
What is the outlook for your organization for the coming months?
Yurop: We do not have a short term outlook. I hope the market stays high. Our clients would be happy as they would get handsome returns. But it does limit our buying opportunities. But the outlook is favourable and we hope to get more buying opportunities.
What are the three things in your business that you need help with?
Yurop: Firstly, being an investment firm, one of the most important things we need is capital. Secondly, since there is a lack of transparency from the companies themselves, the private sector has to lead the way in terms of transparency and good governance. Thirdly, one of the biggest challenges we face while investing is unstable policies in the financial sector. So we need consistency from the regulators of the market.
About the guest
Yurop Shrestha is an energetic and passionate entrepreneur. Yurop is currently the Co-Founder and Chairman of Phoenix Capital, the holding company for ebeema.com and karjabazaar.com. He is also the Managing Director and Co-founder of GG Investment Co. Pvt. Ltd., a private family investment company and Chairman and Co-founder of Snowball Capital, an investment firm modelled after the ‘hedge fund’ concept, focused on the Nepali capital markets. He is also on the Board of Directors for Gahana Griha, a jewellery house in Nepal and was instrumental in establishing the company’s high-end jewellery brand, Zuleika by Gahana Griha. In his capacity as a jeweller, Yurop is on the executive committee of the Nepal Gems and Jewelry Association. Currently, He is actively seeking to diversify the family business’s interest in new segments in a profitable and sustainable manner. Prior to coming to Nepal, Yurop was the VP, South Asia, for Aginsky Consulting Group, where he was responsible for setting up and running the Company’s international branch office in New Delhi, India. From 2011 to 2013, Yurop was a Senior Associate at Aginsky Consulting Group, where he managed a $20 Million real estate portfolio and was an integral member of advisory teams for various acquisitions and consulting projects.