It’s one thing to read about a disaster. It’s quite another to live through one.
Everyone living in Russia in the 1990s experienced total economic collapse firsthand. I was there – the devastation was rife everywhere.
Michael Mauboussin Tips From Great Investors [Pt.2]
This is the second part of a short series on Michael J. Mauboussin's research document reflecting on 30 years of Wall Street analysis published in 2016. Q3 2020 hedge fund letters, conferences and more The document outlined Mauboussin's observations of successful investors throughout his three decades on the Street. This article starts at point six. Read More
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But a few investors (myself included) also recognised the opportunity. We saw the seeds of one of the world’s greatest stock market rallies… and pounced.
This wasn’t just any rally. It resulted in a 6,500 percent increase in the market’s value. A US$5,000 investment would have grown into US$326,000 in just under 10 years.
Last one out the door, turn off the lights
The Soviet Union collapsed in the early 1990s, leaving behind 15 republics desperate to survive the chaos. Russia, the largest of these republics, spent the next decade searching for a new economic identity.
During most of the 20th century, Russians lived under repressive communist regimes. The government prohibited private property and market-driven businesses. After the Soviet Union dissolved, Russia tried to adopt a form of free-market capitalism. It was like a child learning to walk.
Russia made terrible mistakes. Inflation skyrocketed and impoverished the middle class. The government amassed huge debts. The price of commodities (which represented the bulk of Russia’s exports) sank to new lows, adding to the country’s economic troubles.
In August 1998, the Russian government defaulted on its debt. Within a month, the currency fell from 6.26 rubles to the dollar to 20.83 rubles to the dollar. The country’s banking sector imploded. Millions of people lost their life savings.
During the crisis, the Russian stock market fell 93 percent from the previous year’s high. Local daily trading volumes sank to less than US$1 million per day.
“Last one out the door, turn off the lights,” read the headline of one broker’s weekly market update in the depths of market despair a few months later.
Russia hit rock bottom
At the time, I was in Moscow working as a stock analyst for a local investment bank. To get to my desk, I had to walk through what felt like acres of empty cubicles, some with the photos of loved ones on abandoned desks.
In the midst of the crisis, if you found an ATM with cash, you quickly took out as much as possible and told your friends about it.
I spent hours writing letters of recommendation for Russian colleagues applying to graduate school abroad. They all wanted to escape the sinking ship.
This was the point of maximum pessimism. It was one of the biggest financial disasters of the century. Things couldn’t get any worse.
Things can only get better
But when things can’t get any worse for a country, investors flee and prices become extraordinarily cheap. You can also find incredible investment bargains. Buying these bargains can produce life-changing gains… it’s one of the world’s greatest investment secrets.
The Russian stock market hit bottom in October 1998, in the middle of the worst investor sentiment imaginable.
But, over the next 10 years, the Russian stock market rose 6,500 percent.
Most investors will never see that type of gain. However, these kinds of opportunities come up more than you might think.
Big gains in surprising places
You see, there is always a market – in some asset, in some country, somewhere – that’s poised to deliver life-changing gains.
You will rarely hear about these opportunities in the financial media – or from your financial advisor. And if you do, it will probably already be too late to make huge profits. By the time you read the headline on the cover of a glossy finance magazine, or your taxi driver tells you about it, it’s probably not something you should invest in.
Uncovering those cheap assets is one of the things that I’ll be doing in International Capitalist, our new investment research service. I’ll be looking for those types of markets, and companies… and searching for the life-changing price appreciation that can go with them… find out more here. (With a subscription to the Passport Club, the lifetime subscription to International Capitalist, you’ll also have the opportunity to join me on investment research trips to some of the world’s most opportunity-rich markets… you’ll see what I mean here.)
Publisher, Stansberry Churchouse Research