The civilised world has been watching in horror at the events unfolding in Ukraine. It goes without saying that the consequences will be felt for decades, perhaps generations after the nightmare is over. Since this website is dedicated to investing, I’m not going to delve into geopolitics. However, it’s impossible to write a post like this without it having political overtones. Bear with me.
Writing the Next Chapter in the Rus’ Story
All nations are built upon the stories its people tell each other. Russia is no exception. Here’s the short version:
- The Varangian chief Rurik establishes the Kievan Rus’, a loose federation consisting of modern day Ukraine, Belarus and Russia (879-1240).
- Mongols invade, destroy and subjugate the Rus’ for the next 200+ years. This turns Russia into a technological backwater. Violence, torture, corruption and lies become the way to stay alive.
- The horde is eventually pushed out, and an age of chaos follows. The people want an end to the chaos, alas: “A strong, but perhaps tyrannical leader is better than chaos”.
- Ivan The Terrible (1530-1584) becomes the first Tsar. Paranoid, Ivan demands unquestioning loyalty from his Boyars (nobility). Even a suspicion of disloyalty, and it’s off with their heads.
- After the death of Ivan’s son Fyodor, another age of chaos (1598-1613). The former Boyars, the Romanov’s eventually become the ruling dynasty until their end in the 1917 revolution.
I’m aware that there would be plenty more to add, but the list would go on forever. Most of the above is correct. Between all of these events is the repeated story Russia tells itself: It’s always being invaded or threatened by an outsider: The Mongols, the French, the Poles, the Swedes, the Germans etc. Today, it’s Nato or the “Gay-EU”.
The Age of Chaos. Again (1990’s)
As we know, Russia was in disarray after the collapse of the USSR. The nation has humiliatingly failed on the world stage, crime is rampant and there is no accountability to anything or anyone. The people were given pieces of paper granting the right of ownership to formerly state owned enterprises. Imagine yourself the average Soviet citizen. Most likely you don’t know where your next meal is coming from. But you have this piece of paper, and a leather-jacket wearing shady character is willing to trade a sack of potatoes for this piece of paper. Of course you trade. Most people with the piece of paper don’t even understand what it is. The paper-for-potatoes trader goes all around town until he’s run out of potato sacks. Next, these papers move up further, to eventually reach a handful of well connected people who we today call oligarchs, or, the new Boyars.
Consolidating Power
The story Russia tells itself of the 1990s is that of the age of chaos. Words like “democracy” or “free market” is associated with crime, a weak leader (Yeltsin), thieving capitalism and hunger. Thus a new strong leader takes power, and he sits on his throne to this day. It saddens me to say this, but corruption seems to play a disproportionate (and accepted) part of the Russian ethos. It works on perverse incentives, where the more you lie and cheat, the higher up the ranks you move. Imagine what this does to your national image. We see it on full display with their current war in Ukraine.
For the Investor
Unsurprisingly following the current Russian invasion, their markets have tumbled and the Ruble has become rubble. This has pushed prices down to levels that seem ridiculously cheap, where you could (at one point I checked), buy stakes in some of their largest companies for less than 1x earnings. You could cosplay an oligarch from the 1990’s with these prices. But as the Reagan-era anti drug slogan went: “just say no”.
On Truth
Russians have at least two words for truth. First there is “pravda”. Pravda is the truth that seems evident on the surface. Pravda is also a so called “tactical” truth. This means that pravda can be manipulated, if it serves a larger (supposedly common) end goal. The real truth, the underlying, cosmic, unshakable truth of things is called “istina”. You can fiddle with the pravda all you want, but you can’t change the istina. Russia recently said during another round of “peace talks” that they will be reducing activity in the north of Ukraine. Yet, shelling continues as it has been. Clearly, a “tactical” truth.
Fight the Good Fight
As enlightened investors, we want to allocate our funds according to our values. Considering the abysmal state of Russia, its institutions and pravda, do you believe you are getting “istina” from their companies annual reports? Putin’s judo-buddy and childhood friend Arkady Rotenberg is the “founder” of Stroygazmontazh, a billion-dollar infrastructure company. Do you believe that publicly traded Russian companies promote in a meritocratic way? Are the numbers exposed to pravda, rather than istina?
Imagine you’re talking about investing with your mates. Then one proclaims they’ve bought stocks in all these cheap Russian companies. If it doesn’t make you feel some kind of way, perhaps you need new friends. You cannot say you’re against the war or for Ukraine if this is what you choose to do with your money. You’re legitimising the existence of the regime, there’s no other way to put it.
End Game
Believe it or not, it’s actually much more fun to invest in companies (and countries) you like. No shame, no guilt. Companies you do like go on sale from time to time, and it’s a joy when it happens. It’s tragedy what’s going with Russia, and i believe it will remain stagnant or in decline during the upcoming decades. Additionally, the country is really a nation “that could’ve been”. Rich in resources, the arts and literature, they could’ve been a economical and cultural powerhouse on the world stage. It goes without saying that my heart goes out to all those suffering. Some say that there’s nothing an everyday Russian can do against the tyranny their under, but I don’t think this is entirely true. Obviously we know the only way Russia changes (if ever) is from the inside. As they say, the future is in their youth. This youth has no ties to a closed Soviet Union of the past, and has been exposed to the internet growing up. No matter how much the state pushes pravda, istina will prevail.
If you invest in Russia at its current state, and end up losing your stake, you definitely deserve it. Слава Україні!
-IGTSKasimir
Further Reading
Warren Buffett – The Partnership Days (1956 – 1969)
Philip A. Fisher – Lessons From The 15% Man
The Best of Ben Graham – Security Analysis
Phil Town – The Compounding River Guide
Margin of Safety – The Most Important Thing
Intelligent Investing = Thinking In Probabilities
The Emotional Stages of a Value Investor
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