A Pyrrhic victory is so called after the Greek king Pyrrhus, who, after suffering heavy losses in defeating the Romans in 279 B.C., said to those sent to congratulate him, “Another such victory over the Romans and we are undone.”
A quick thought on the debt-ceiling debacle. I believe that by August 2nd we’ll see the debt ceiling increased, as the cost of not doing so is simply unknown and most likely too high. However, it will be a Pyrrhic victory for whatever side claims it, as the victory will undoubtedly undermine the world’s trust in the US dollar and its debt ($37.5 billion leaving money-market funds that invest in Treasuries in one week proves the latter point already).
I analyzed Brown & Brown about a year ago (May 2010), and judging from the latest quarter this analysis it is still very relevant today (here is a link).
I was interviewed by Charles Kirk, the host of KirkReport.com.
(Watercolor “Mexican Shores” is by my father Naum Katsenelson)
Q&A With Vitaliy Katsenelson
A number of members have requested that I interview a value-focused investor with a longer-term time horizon. While there are many people I could choose, I thought it was about time I finally interviewed Vitaliy Katsenelson who fits that profile. Many of you know Vitaliy from his website, Contrarian Edge, as well as his books on investing.
While there are thousands of traders who read The Kirk Report daily, there are still just as many who utilize longer-term approaches and who are focused on finding value versus short-term momentum. No matter what your strategy or focus, we hope you find this interview helpful.
Kirk: Hi, Vitaliy! It’s great to have you here with us today. While I know many are familiar with you and your background, please start out by telling us a little bit about yourself and how you began to learn about the markets and investing.
Vitaliy: I was born in Murmansk, a city in northwest Russia, located above the Arctic Circle (think long winters with little daylight, intense cold and beautiful white nights in the summer). Murmansk, on the Barents Sea, is the home of the only Russian shipping port that doesn’t freeze in the wintertime.
Russia had (and still has) a draft army. Though in the United States most look at serving in the army as an honor, in Russia most parents dread the day their sons turn 17. Not because of fear of dying in a war – by the late ’80s the Soviet Afghan war was over – but because serving in the army is looked upon as a prison sentence, two or three years of lost youth. Draftees are usually sent away thousands miles away from their homes (the logic is that in case there is social unrest and the army brought in, soldiers more likely to use force against strangers than friends and relatives). Young soldiers are commonly abused by older ones, and the pay afforded soldiers barely leaves them enough to buy postage stamps to write home to ask for more money.
There were several ways to avoid the draft. You can fake sickness – a very sane friend of mine spent two months in a mental institution, faking mental illness (he succeeded). Or you can run away. However, despite the enormous size of the country, the authorities will find you. Or you could keep constantly having kids until you turn 27 – another friend of mine did just that. And finally – and this is the most common method – you can go to a college or university that has an exemption from the draft.
By the time I was approaching the dreaded draft age, all universities in Murmansk had lost their draft exemption except one, Murmansk Marine College. It was a somewhat unusual college: it accepted students after the 10th grade, and we were not usual students, we were cadets. The first three years we were required to live in an military-like dormitory. We wore navy uniforms, had commanding officers, walked to classes in ranks, and about twenty percent of our courses were military.
I hate following mindless orders till this day, and I hated every moment of being there. But, I was ten minutes away from my parents, and this was a much better alternative than going into the army. In other words, this was a milder version of hell. If I were to graduate I’d become a mechanical engineer on a fishing or transport ship. I was looking ahead with horror to my graduation, because I was about to get into a profession that I could not stand. To say I was not motivated to study is an understatement; I barely passed every class, with the exception for one: microeconomics. I felt almost like a hidden gene was suddenly activated; I had this intuitive understanding of the subject without opening a book. It was the only subject that I aced.
Luckily, I never had to face my worst fear of becoming a mechanical engineer because, in 1991, a few months before graduation, my entire family, blessed by the genetic lottery by being Jewish, was accepted for immigration to the United States (at the time, the Jackson-Vanik amendment forced Russia to allow Jews to immigrate to the US and Israel).
My revelation with the economics class helped me to understand that I wanted to be a business major when we arrived here and I went to university, but it took me a few more years to realize that I wanted to be an investor. In fact, I did not even consider investing as a career track at first. Being an investor was not an option in the Soviet Russian culture – there was no stock market! In fact, at first my understanding of investing was completely shaped by a Russian documentary I watched in late ’80s that showed videos of the NYSE, with people yelling and throwing papers around – I remember that a man complained of going deaf from all the noise. The impression I had was that the whole investing thing was like living in a really loud casino.
While going to college in the US, the only employable skill I had (except my winning smile) was my computer knowledge. To my great fortune, I landed a tech job at an investment firm. Now it sounds laughable, but the owner of the firm did not want spend the money on a fax machine that had a multipage feeder. Yet the firm needed to fax trade orders to multiple brokerage firms, so for the first few months I was the “auto feeder” for the fax machine. I spent several hours a day standing by the fax machine, feeding pages into it.
The owner, who is now a good friend of mine, decided that my talents were better put to use doing something more creative, and he asked me to write a relational database. I got lucky. At the time (this is the mid ’90s), Microsoft had unlimited technical support for its