My trade on Russia continues to do well, as in, I’m up 82.5% since Mar 7.
But now it’s time to get serious. Why is that trade working? Quite obviously, because I bought undervalued assets that “the market” --in its infinite wisdom-- is now beginning to price correctly. In other words, using the lessons taught by Ben Graham, and learned by his star pupil, Warren Buffet, I bought ‘cheaply’, and now I could sell ‘dear’. That is the essence of the game of ‘investing’. “Buy cheap; sell dear.” Period. End of story.
“Yes”, there are some investing greats, such as Wm O’Niel, who use a strategy based on ‘momentum’, not ‘mean reversion’. But that’s not a game most would-be investors can do well. Instead, they need to use the same strategy to buy stocks --aka, exchange-traded derivatives that have an often very tangential relationship to their underlying-- as they use when buying bell peppers or broccoli. When broccoli or bell peppers are 'cheap --i.e., priced at under their average value–, you buy more and adjust the dinner menu accordingly. When they are ‘dear’, you buy less, or make substitutions such as looking at cabbage.
So, how to know when stocks are ‘cheap’ and stocks are ‘dear’? That’s the ‘Catch-22’ of the investing game. When buyers think a company’s prospects are favorable, they bid up the price of the stock. When they think a company’s prospects are poor, they sell its stock down. So, should you trust their judgment --or that of “newsletters”-- or should you form your own opinion based on the evidence of a company’s financial statements and its price chart?
Right now, everything “Russian” is anathema. For God’s sake. Salad dressings are being renamed and letters of the alphabet banned. That sort silliness and hysteria --such as excluding Russia from SWIFT-- creates bargains that need to be considered. So the investing problem becomes this: “How best to put on the trade?” and “How much?” This is where I screwed up. I should have bet bigger, and I should have “averaged up” once I saw that the “the market” had confirmed that my entry was correct. OTOH, that isn’t “my style”. I survive and prosper, because I bet “widely and small”.
The sanctions imposed on Russia by the US and its Euro vassals are already blowing back on them, because Russia, China, India, Iran, and other countries knew this day was coming and have been preparing for years to do an end run around the reserve status of the $US dollar. As US and its vassals continue to commit economic suicide, other investing opportunities will be created. Investing in them won’t be comfortable, because we humans “herd”. Like sheep, we feel safe when everyone around us is bleating the same message and grazing on the same propaganda. But departing from the herd is often the safer and better path, as Mandelbrot details in The (Mis)behavior of Markets or Justin Mamis in The Nature of Risk.
That’s the lesson to take away from this. You gotta know who you are and what is your tolerance of risk when you’re at the ‘hard, right-hand edge of the chart’ and everyone else is ignoring obvious facts, such as Russian stocks represent factional ownership of viable, profitable businesses, and they need to be bought when they become discounted, especially since the US is the aggressor in Ukraine, having overthrown an elected gov’t in 2014, installed Neo Nazi puppets, armed their militias, and then abetted the bombing and killing of 14,000 to 22,000 civilians in Donbass.
Buying Russian stocks isn’t just a ‘smart trade’ It’s a ‘righteous one’. (IMHO, 'natch.) But others might have a different take on this, and a discussion of what constitutes ‘ethical investing’ might be worth launching.
Arindam