How my Russian stocks are doing
Most people are wrong, most of the time, about almost everything…
Ouch! Our small holdings of Russian stocks are down almost 60% so far this year. But you’re probably wondering: what are we doing investing in Russian stocks in the first place? Ah, dear reader… let us explain.
As we’ve seen, the markets move in great, generational sweeps from high to low and back to high again. The general rule (and we’re not divulging any trade secrets here) is to buy low, and sell high. Many people have tried it the other way around, but the results have been disappointing.
We bought Russian stocks as part of a special programme – mostly for fun – in which we invest in the worst-performing markets, counting on “reversion to the mean” and “contrarianism” to turn them around. After all, a single company can go down and never get up again. So can an entire industry. But not a country. Often beset by worries, nevertheless, they tend to survive.
Russian stocks were shot down long ago, but didn’t die. Rarely does a whole country go out of business. Instead, it goes up and down. When we bought them, they were among the most unloved equities on the planet. Yet they were real firms, operating in a real country, with very sophisticated engineers, a big domestic market and all of Europe just a pipeline away. And now, they’re even cheaper.
But wait. Russians are “bad guys”. The world has turned against them. And Russian assets are stranded, doomed. The Russian stockmarket has been closed since the invasion of Ukraine. In New York, the losses mounted up so high, trading in Russian shares was halted. But a few Russian stocks and ETFs traded in London… and it was a bloodbath. The two leading Russian stock ETFs dropped 25% each. Russian bonds, too, have collapsed; they’re now selling for about 33 cents on the dollar. The Russian rouble is losing value on world markets; in Russia, the physical currency is hard to get, with long lines of people trying to make withdrawals. And Sberbank, whacked by sanctions and thought to be near bankruptcy, lost 75% of its value.
Did investors overreact? Did politicians? In private life, most people get along tolerably well. But in public life, most people are wrong, most of the time, about almost everything. Humans take their cues from others, especially their leaders. They tend to unite behind jackass leaders, trample each other in a stampede, and pay too much for their favourite investments. But there’s always more to the story; eventually, it comes out…
In the short run, says Warren Buffett, the stockmarket is a “voting machine”. The mob votes for stocks like it votes for politicians – electing buffoons and frauds. The contrarian takes the other side of the trade. He votes for the underdog and waits for June.
“Buy low, sell high. Many have tried it the other way around without success”