Here in Finland, this year, 2023, we have seen poor performance. Beginning of the year, major news outlets screamed that OMX is a big pile of shit, and now everybody is screaming that it is cheap and good to buy.
My strategy is to get limited exposure to Finland. I already have massive exposure to Finland.
I live in Finland
I run my business in Finland
Why on earth would I like to get more exposure to Finland? There has to be a massive upside if I jump in. Many Finnish small investors make the mistake that they are 100% invested in Finland… Sure, they work globally but still… This risk has been talked about recently:
"Investment guides advise investing only in businesses that one understands or is familiar with.
This advice has been obediently followed: nearly 90 percent of direct stock investments by small investors are in familiar domestic companies whose shares are traded on the Helsinki Stock Exchange, says Sari Lounasmeri, the CEO of the Stock Exchange Foundation, which promotes investing."
So, what’s the problem?
Almost everything in Finland's market appears “cheap,” Our largest entities are predominantly cyclical, and such businesses are underperforming globally. Take Nordea, for instance, our most significant standalone company. On the surface, it seems “cheap”, but the real question we should ask is, why? It's as if the market has stopped probing the reasons behind valuations.
Why do Finnish companies fall short? I once deeply admired these stocks, viewing them as quality businesses. Now, they increasingly resemble value traps rather than genuine opportunities. Can the prices get even lower? Why are they cheap?
A top-tier company should ideally possess three cardinal qualities:
A Robust Business Model: A sustainable competitive advantage that allows it to generate consistent profits.
Exceptional Management: A team that can steer the company through calm and turbulent waters, making strategic decisions and prioritizing long-term growth.
A Strong Financial Position: A solid balance sheet that provides a margin of safety, ensuring the company can weather economic downturns and capitalize on opportunities.
It seems Finnish companies often miss one or more of these crucial elements. The challenge is discerning whether it's a temporary lapse or a more systemic issue.
Yeah hard to find the perfect company, but at least after 2008, you could make a case that some of these Finnish companies would become “perfect” Can the same be said now? Here is a story where I ponder more on management:
And here, rambling the Finnish stock market darlings in the last run:
What are your almost perfect companies in Finland? I have UPM, and would love to know if there are better ones. There are still wonderful businesses here in Finland, don’t get me wrong - I don’t try to be contrarian all the time just for the sake of it. You have to do your homework here.
I don’t buy stocks because they are down -60%, and hope they will return to ATH.
Why own Finnish stocks? Diversify to the 1970s?
Let’s find some exciting small caps in Finland!
Let’s go small market cap below 50milj, around 50 companies. I use Tradingview as a starting point. The only candidate I found was Lappwall (Listed in 2022).
P/E 11, makes some money, little debt, and blood already in the street in this construction industry, so it might be an excellent opportunity to dive in? It has its little niche:
LapWall Oyj manufactures prefabricated wood elements. Its products include single layer and multi-layer wall elements, roof elements and roof element systems, as well as façade elements. It also offers element installation services and solutions. The company was founded on September 7, 2011
They also have a good ecologic narrative ongoing:
Lappwall building in factories VS building on site.
Lappwall products:
Well, well, does it look like they will last +100years? Well, what could last +100years whats built after the 1960s? It looks pretty shit to me, but so does everything else made nowadays. That is just my opinion.
People want cheap and affordable living, and the point is to live for five years and flip it for the better and bigger. Let’s not complain about the “clown world” but embrace it for the moment, and this hits all the marks to be a major home run if we get a similar housing/building boom after this current downturn. Hard to see why not?
Moreover, there's a deep-rooted cultural aspect at play here. Finns have a penchant for ownership, especially when it comes to property. It's not just about having a roof over one's head; it's about owning that roof, those walls, that piece of land. This intrinsic desire to own property and the evolving mindset of short-term ownership create a unique market dynamic.
This mentality is not vanishing no matter what happens. It seems programmed to Finns.
Excellent management - These guys know how to run this.
Good products and these are needed. If I started a new housing project for myself, I would want most of the work to happen in a factory setting. No brainer for the likes who know nothing about building a house?
Any negatives?
The whole construction industry is horrible.
→ Is this the moment when there's 'blood in the streets,' presenting opportunities for agile and strategic players? With valuations at a low, I aim to buy assets when others see only disaster. While most run away from burning houses, I run towards them.
→ I have limited knowledge of this industry. Well, everybody builds shit nowadays, so does it even matter that much? It can surprise if these are good products.
Laestadian connected. Big red flag, but it also presents a unique opportunity.
→ Good connections in the construction industry (lots of Laestadian).
→ Good connections to the public sector (lots of Laestadian).
→ There is even a book written about this: I might even read it. https://vastapaino.fi/sivu/tuote/vanhoillislestadiolaisuuden-taloudelliset-verkostot/2370073
Lehto group was also tightly connected to this Laestadian—management sold at the top. It is on the verge of bankruptcy nowadays.
→ Keep taps on what management is doing.
Jarmo Pekkarinen is the CEO and Timo Pekkarinen (Ex CEO and owner of the big construction company LAPTI). Lapwall listed in the turmoil of 2022 at 2,72€ very reasonable price compared to the shenanigans we had during 2020-2021… The current price is 3,20€.
These guys know how to run a construction business. They are prepared well for the downturn and are on the look for some small acquisitions. Partnering with solid companies and deals with the public sector.
Biggest risk?
Everybody knows that the construction industry is in big trouble. We are still in denial mode. “Things will return back to normal soon”. I am afraid this correction will take a lot longer than everybody anticipates. The mess of 0-rates will not be fixed in one year. There is also too much hope that interest rates would drop, so we are “fine.” At least in the interviews/material concerning Lapwall, the management did not whine about this. They are working hard to close the deals!
Denial: There's hope it's a minor correction and things will soon return to normal. WE ARE HERE?
Fear: Reality sets in. Businesses start to cut back; jobs are lost. (This part beginning now)
Desperation: The downturn deepens, and there's a feeling of despair. People might start to panic, selling assets at a loss.
Panic: This is the point of maximum financial opportunity and maximum pain. There's a widespread belief that the downturn will never end.
Capitulation: A general feeling of "giving up." People believe that the economic landscape has permanently changed for the worse.
Despondency: The lowest point of the cycle. However, it's also the point where things start to turn around, even if it's not immediately apparent.
Hope: The first signs of recovery appear. While there's still caution, there's also a belief that the worst is over.
Here is my story from earlier this year:
Lot more anecdotal stories:
Story 1: City of Helsinki: "Närö states that a central feature of ARA rental housing production is that new buildings are financed entirely with loans. Major renovations are also primarily financed with a hundred percent loan."
→ Best part? All loans in 12-months Euribor seemed like a great idea? Where is risk management or anybody who can think? Let’s give them 🤡 fantastic work.
Story 2: Government austerity policies hit hard to housing: "Housing subsidies are planned to be cut by 355 million."
→ There is little “helping hand” from the government; these city housing projects usually dragged the construction industry through minor downturns. What about now?
Story 3: CEO of Kojomo (Is this stock cheap by the way?) "Fewer new housing projects will be constructed this year than in recent years, estimates Kojamo's CEO Jani Nieminen.”
→ Crash over 60% in new housing projects 20k? 15k? Numbers keep getting lower. Combine this with austerity policies.
Story 4: "The family can only repay 84 euros a month from their 499,000 euro mortgage."
→ Hard times, there is simply zero bid on new houses. Nobody can afford them at the moment. House prices don’t go up forever? I sympathize with the average Fins; they can’t help themselves; it is programmed into them. Consumers are also in “Denial mode” - Next year, it will be okay. I surely would not bet my money on it.
Bonus: What if the interest rates stay higher longer and Inflation comes at wawes? This always happened in history (Video).
No, it won’t be the end of the world. People are still buying homes with good locations and reasonable prices. We will return to the housing boom, but it will take longer than everybody anticipates.
We haven’t yet seen any panic and capitulation.
I firmly believe Lappwall will be just fine. Hard to see that their biggest owners would JEET their bags for a few million? They would not have listed in 2022 if that was the case. Hard to see, on the other any upside for the rest of 2023 and 2024.
They have an excellent new partner Kastelli. There is a huge demand for these family houses. The boom will start from here, and Lapwall is positioned to benefit greatly. Maybe even the next boom will be this egological modular and small houses instead of big apartments. These are the most sought products for consumers.
Conclusion
I don’t know; somehow, it saddens me a little bit that the most exciting company for the moment I can find is Lapwall in Finland. All credit to Lapwall - it looks like good business, and I will follow them and might even become an owner along the road.
Why should I be surprised? Over 90% of Finnish people's net worth is tied to the walls, and almost all investments here are WALLS.
I hope we are in Europe and Finland at the peak of Government idiocy, and the pendulum swings naturally to the opposite side. Hope is a shit strategy. I want my portfolio and assets to be as much as immune to this ongoing “stupidy,” and owning Finnish stocks does not play along so nicely with this.
The hope of constantly rising real estate prices is here in Finland, at least coming to an end, but the hope of a quick turnaround is also too strong.
The Finnish stock market is cheap, but it can also get cheaper - Risk & Reward isn’t there yet, at least for me.
I hope the best for Finnish small investors, and I hope the best for Finland; I run my business here and raise my family in Finland.
Finland is still an awesome place to live and has lots of quality businesses if you are willing to hold these assets long term and know what you buy; pleasant prices to average in. I'd invest more in Finnish companies if I weren't already balls-deep in my business here.
Sources
https://lapwall.fi/