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General Category => General Discussion => Topic started by: rukawa on November 28, 2013, 10:08:00 AM

Title: Why are Russian stocks so cheap?
Post by: rukawa on November 28, 2013, 10:08:00 AM
I was reading WSJ and noticed that the Russia has one of the lowest emerging market PEs. Right now it is about 4.5. Greece is a lot higher than I expected...I am guessing because of cyclically low earnings.

http://online.wsj.com/news/articles/SB10001424052702304281004579222303336597192
Title: Re: Why are Russian stocks so cheap?
Post by: ItsAValueTrap on November 28, 2013, 10:12:31 AM
Some people think that Russian stocks have very high levels of corruption.
Title: Re: Why are Russian stocks so cheap?
Post by: Packer16 on November 28, 2013, 10:14:12 AM
Part of it is much of Russia is a kleptocracy led by the government.  There are some good cheap companies there like Lukoil but firms like Gazprom are tied into the government with product pricing determined by Putin et al.  If you can seperate out the good from the bad, there are some bargains there.

Packer 
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on November 28, 2013, 10:27:21 AM
Part of it is much of Russia is a kleptocracy led by the government.  There are some good cheap companies there like Lukoil but firms like Gazprom are tied into the government with product pricing determined by Putin et al.  If you can seperate out the good from the bad, there are some bargains there.

Packer

+1
Title: Re: Why are Russian stocks so cheap?
Post by: Pauly on November 28, 2013, 12:08:49 PM
I'm keeping an eye on the Sberbank thread, but when you read stories about how the Russians have managed to run up a $50 billion bill for a Winter Olympics it makes you think that Russia is a great place to make money vanish into thin air.

I'm sure it's that risk that's keeping their market cheap. My guess is that it's a market that will produce some big winners, and a lot of catastrophic losses.
Title: Re: Why are Russian stocks so cheap?
Post by: turar on November 28, 2013, 12:11:59 PM
See Yukos: http://en.wikipedia.org/wiki/Yukos
Title: Re: Why are Russian stocks so cheap?
Post by: wellmont on November 28, 2013, 12:32:44 PM
because they are stocks in russia.
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on November 28, 2013, 12:43:25 PM
I'm keeping an eye on the Sberbank thread, but when you read stories about how the Russians have managed to run up a $50 billion bill for a Winter Olympics it makes you think that Russia is a great place to make money vanish into thin air.

HBO's Real Sports did a segment on the Sochi games. The level of corruption is hard to believe, even for Russia. They built a ~30 mile road from the Olympic square to the Ski/Snowboarding mountain. For $9 billion USD. And of course the contractor is Government-owned Russian Railways. The program also mentioned that the total cost for the Olympics will be around $50 billion, which is roughly equal to the cost of all previous winter Olympics combined.
Title: Re: Why are Russian stocks so cheap?
Post by: peterism on November 28, 2013, 12:50:26 PM
Because there are just two types of investors in Russia. Those who lost their money and those who will loose their money.
Title: Re: Why are Russian stocks so cheap?
Post by: Palantir on November 28, 2013, 01:58:56 PM
In Soviet Russia, stocks short you!
Title: Re: Why are Russian stocks so cheap?
Post by: hardcorevalue on November 28, 2013, 02:21:55 PM
In Soviet Russia, stocks short you!

+1
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on November 28, 2013, 04:37:39 PM
Russia is sort of interesting to me.  It's not for the faint though.  I hold Gazprom and Lukoil and have considered the ishares Russian etf.  Check out Jim Grant's comments on Russian energy stocks: 

http://www.cnbc.com/id/101033958

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on November 29, 2013, 07:30:29 PM
So the argument is that the proper PE for Russian stocks is zero? Surely even with incredible levels of corruption there is a price which is too low? Also India is highly corrupt and yet their valuations are much higher.
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on November 29, 2013, 08:55:10 PM
So the argument is that the proper PE for Russian stocks is zero? Surely even with incredible levels of corruption there is a price which is too low? Also India is highly corrupt and yet their valuations are much higher.

“You can’t make a good deal with a bad person.” - WEB


There might be some value but at what price are you willing to pay?
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on November 29, 2013, 10:38:59 PM
“You can’t make a good deal with a bad person.” - WEB

There might be some value but at what price are you willing to pay?

At half of the value estimation.

"I think if it’s cheap enough, you can afford more country risk or regulatory risk. It’s not complicated." CM

We're all seeing the same thing here. Russia's Government is corrupt. But this doesn't mean their entire stock market is valueless.

It's like investing in China where you have a Government sorely lacking in repute and virtue. There's this miasma of corruption and gross immorality in the markets. And in '04 there was PetroChina... selling at $36 billion. You could have said, the Government is a majority shareholder, this could all go wrong, and so many Chinese companies are frauds. And you'd have been right. There is a possibility of loss-- total loss. But estimate the odds for the possible outcomes. Are the odds in your favor? After you answer that I don't think you need to ask anymore questions.
Title: Re: Why are Russian stocks so cheap?
Post by: plato1976 on November 29, 2013, 11:54:57 PM
What's the discount of large russian big oil like lukoil against majors in OECD countries ?
If the discount is bigger than 70% I will be glad to consider it...

“You can’t make a good deal with a bad person.” - WEB

There might be some value but at what price are you willing to pay?

At half of the value estimation.

"I think if it’s cheap enough, you can afford more country risk or regulatory risk. It’s not complicated." CM

We're all seeing the same thing here. Russia's Government is corrupt. But this doesn't mean their entire stock market is valueless.

It's like investing in China where you have a Government sorely lacking in repute and virtue. There's this miasma of corruption and gross immorality in the markets. And in '04 there was PetroChina... selling at $36 billion. You could have said, the Government is a majority shareholder, this could all go wrong, and so many Chinese companies are frauds. And you'd have been right. There is a possibility of loss-- total loss. But estimate the odds for the possible outcomes. Are the odds in your favor? After you answer that I don't think you need to ask anymore questions.
Title: Re: Why are Russian stocks so cheap?
Post by: cr6196 on December 01, 2013, 07:09:53 AM
Well this thread makes the answer obvious, the perception of corruption. I don't see any actual appraisal of the risk though, the situation in Russia is certainly more complicated than "bad government"...go back fifteen years and the government was the victim, not the perpetrator, of theft. Russian billionaires have pulled off quite a PR coup in this regard...after stealing state assets using state money they convince everyone that the state is the problem. Either way, to find out if Russian stocks really are cheap (not why they are cheap) I think you have to understand the situation on its own terms. To me this suggests, at least, that the current situation isn't black and white. The current government has done far better than the "business-friendly" ones of the 1990s. Also there are obviously some well-run businesses outside of O&G, Magnit being perhaps the best known.
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on January 03, 2014, 01:15:22 AM
http://www.bloomberg.com/news/2014-01-02/gazprom-top-pick-to-bernstein-for-2014-russia-overnight.html (http://www.bloomberg.com/news/2014-01-02/gazprom-top-pick-to-bernstein-for-2014-russia-overnight.html)


Gazprom Top Pick to Bernstein for 2014
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on January 03, 2014, 02:00:36 AM
At half of the value estimation.

"I think if it’s cheap enough, you can afford more country risk or regulatory risk. It’s not complicated." CM

We're all seeing the same thing here. Russia's Government is corrupt. But this doesn't mean their entire stock market is valueless.

It's like investing in China where you have a Government sorely lacking in repute and virtue. There's this miasma of corruption and gross immorality in the markets. And in '04 there was PetroChina... selling at $36 billion. You could have said, the Government is a majority shareholder, this could all go wrong, and so many Chinese companies are frauds. And you'd have been right. There is a possibility of loss-- total loss. But estimate the odds for the possible outcomes. Are the odds in your favor? After you answer that I don't think you need to ask anymore questions.

for me it's super important to understand the country i'm investing in, at least on some level. russia is not a place i (or anyone not russian) can properly understand. the culture and way people think are just so different from what i'm used to.

so at some ridiculous P/E 1 valuation i might invest, but in the end i'd much rather do 10% per year in civilized countries than 20% in russia.

the point being, russia might not be as fair to investors as americans have come to expect if shit hits the fan. this makes it uninvestable for me. -100% feels like a possible outcome. in 30-40 years i'm probably going to feel like an idiot because of this, but thats life  8)
Title: Re: Why are Russian stocks so cheap?
Post by: CorpRaider on January 03, 2014, 01:49:36 PM
I personally don't like investing in places where there aren't good property rights and a solid tradition of rule of law.  Putin is likely to take your cookies if he wants them.  If enough people feel the same way it might result in lower multiples.
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 07, 2014, 09:04:46 PM
I have decided to invest in Russia. I know little about the country, little about the politics and I believe the country is very corrupt. But at a 4 p/e I think it doesn't matter. I am considering two investments:  Market Vectors® Russia Small-Cap ETF and Gazprom. Gazprom sells at like a 2  p/e and its State owned and its basically a piggy bank for the corrupt Russian government.

Putin will probably take my cookies from Gazprom but at a 2 p/e how many cookies is going to get? And he isn't going to touch small cap Russian companies...just too small. To me this is a no-brainer by which I mean you need little research or understanding to make these investments. The low valuation is so important it overwhelms everything else.
Title: Re: Why are Russian stocks so cheap?
Post by: plato1976 on March 07, 2014, 09:13:57 PM
I find this argument very convincing:

"he isn't going to touch small cap Russian companies...just too small. "


I have decided to invest in Russia. I know little about the country, little about the politics and I believe the country is very corrupt. But at a 4 p/e I think it doesn't matter. I am considering two investments:  Market Vectors® Russia Small-Cap ETF and Gazprom. Gazprom sells at like a 2  p/e and its State owned and its basically a piggy bank for the corrupt Russian government.

Putin will probably take my cookies from Gazprom but at a 2 p/e how many cookies is going to get? And he isn't going to touch small cap Russian companies...just too small. To me this is a no-brainer by which I mean you need little research or understanding to make these investments. The low valuation is so important it overwhelms everything else.
Title: Re: Why are Russian stocks so cheap?
Post by: turar on March 07, 2014, 09:20:36 PM
I find this argument very convincing:

"he isn't going to touch small cap Russian companies...just too small. "


For one Putin there are hundreds lower-level officials in his court and protection, for whom they won't be too small.
Title: Re: Why are Russian stocks so cheap?
Post by: Packer16 on March 07, 2014, 09:26:54 PM
If you look at the composition of the ETF I think you will find strategic sector companies (gas pipelines, electricity generators/distributors and airlines) that Putin may take the cookies too.  One note about Russia is that there has only been one nationalization (Yukos) and that was run by a guy who actively opposed Putin politically.

Packer
Title: Re: Why are Russian stocks so cheap?
Post by: Palantir on March 07, 2014, 09:53:05 PM
I've been drinking, but CTCM looks good. I'd prefer to stay away from strategic assets like energy or minerals, and focus on firms that are paying dividends from their FCF.
Title: Re: Why are Russian stocks so cheap?
Post by: yadayada on March 08, 2014, 02:58:56 AM
it seems that if they paid dividends/stock buybacks, and it is a good business trading at a cheap multiple, the corruption is probably already factored in when you look at the bottom line. Lets say a company makes 50 million$ a year. Cost of goods sold is like 250 million, then corruption is probably already part of this 250 million$ cost. In the US COGS might be only 210 million $ for the same company.

So if you can get this company for a PE of 5, it seems that corruption has to go up by alot over the next years to make it a bad investment. And COGS has to go up another 20 million$ in corruption or so for you to break even. But if COGS has been steady over the past years, that seems unlikely? Especially if it will hurt the country. Because at some point corruption will actually hurt putin you would think.
Title: Re: Why are Russian stocks so cheap?
Post by: Liberty on March 08, 2014, 08:37:48 AM
it seems that if they paid dividends/stock buybacks, and it is a good business trading at a cheap multiple, the corruption is probably already factored in when you look at the bottom line. Lets say a company makes 50 million$ a year. Cost of goods sold is like 250 million, then corruption is probably already part of this 250 million$ cost. In the US COGS might be only 210 million $ for the same company.

So if you can get this company for a PE of 5, it seems that corruption has to go up by alot over the next years to make it a bad investment. And COGS has to go up another 20 million$ in corruption or so for you to break even. But if COGS has been steady over the past years, that seems unlikely? Especially if it will hurt the country. Because at some point corruption will actually hurt putin you would think.

But what if you can't trust the financial statements, or that contracts will be enforced? That's another way in which corruption/weak institutions can screw you.
Title: Re: Why are Russian stocks so cheap?
Post by: yadayada on March 08, 2014, 08:49:55 AM
Shouldnt you see that in the cash flow statements? I supose if they are expanding then it could be problematic to see that. But if it is a steady eddy business, they should generate alot of free cash flow right?

And ofcourse make sure the free cash flow doesn't come from selling off assets or other questionable stuff.
Title: Re: Why are Russian stocks so cheap?
Post by: EliG on March 08, 2014, 11:05:50 AM
Those of you thinking about buying Russian ETF, read Ben Inker's (GMO) thoughts on lagged value. Buying countries that were the cheapest one year ago beats buying countries that are the cheapest today. Value+Momentum > Value. See Page 11.

http://www.gmo.com/websitecontent/GMO_QtlyLetter_ALL_4Q2013.pdf
Title: Re: Why are Russian stocks so cheap?
Post by: constructive on March 08, 2014, 11:16:57 AM
Those of you thinking about buying Russian ETF, read Ben Inker's (GMO) thoughts on lagged value. Buying countries that were the cheapest one year ago beats buying countries that are the cheapest today. Value+Momentum > Value. See Page 11.

http://www.gmo.com/websitecontent/GMO_QtlyLetter_ALL_4Q2013.pdf

Russia was the cheapest market a year ago too.
Title: Re: Why are Russian stocks so cheap?
Post by: Palantir on March 08, 2014, 11:25:00 AM
If you're getting dividends you will worry less even if your stock stays cheap.....
Title: Re: Why are Russian stocks so cheap?
Post by: ERICOPOLY on March 08, 2014, 11:45:39 AM
If you're getting dividends you will worry less even if your stock stays cheap.....

It distresses me to pay taxes when there is no gain.
Title: Re: Why are Russian stocks so cheap?
Post by: plato1976 on March 08, 2014, 12:14:30 PM
what's the next cheapest country one year ago ?
I think one of those EUR countries that were in trouble ? Spain ?

Those of you thinking about buying Russian ETF, read Ben Inker's (GMO) thoughts on lagged value. Buying countries that were the cheapest one year ago beats buying countries that are the cheapest today. Value+Momentum > Value. See Page 11.

http://www.gmo.com/websitecontent/GMO_QtlyLetter_ALL_4Q2013.pdf

Russia was the cheapest market a year ago too.
Title: Re: Why are Russian stocks so cheap?
Post by: Zorrofan on March 08, 2014, 12:25:43 PM
Part of it is much of Russia is a kleptocracy led by the government. 

Putin has already threaten to seize "Western" assets if sanctions are imposed.  So on top of everything else you have to add increased political risk......remember the quote about the return OF your money being more important than the return ON your money!

cheers
Zorro
Title: Re: Why are Russian stocks so cheap?
Post by: Palantir on March 08, 2014, 12:32:22 PM
If you're getting dividends you will worry less even if your stock stays cheap.....

It distresses me to pay taxes when there is no gain.

I have a Roth...although the tax withholding might be a concern.
Title: Re: Why are Russian stocks so cheap?
Post by: augustabound on March 08, 2014, 12:49:32 PM
what's the next cheapest country one year ago ?
I think one of those EUR countries that were in trouble ? Spain ?


For year end 2012 I thought the cheapest were Greece and Ireland.
Title: Re: Why are Russian stocks so cheap?
Post by: constructive on March 08, 2014, 01:11:07 PM
http://www.businessinsider.com/the-cheapest-stock-markets-in-the-world-2013-3

Russia, Argentina, China and Norway were cheapest on PE, Greece and Ireland cheapest on CAPE.
Title: Re: Why are Russian stocks so cheap?
Post by: EliG on March 08, 2014, 02:09:45 PM
May 31, 2013

(http://i.imgur.com/cQeM9ym.jpg)
Title: Re: Why are Russian stocks so cheap?
Post by: augustabound on March 08, 2014, 02:26:28 PM
http://www.businessinsider.com/the-cheapest-stock-markets-in-the-world-2013-3

Russia, Argentina, China and Norway were cheapest on PE, Greece and Ireland cheapest on CAPE.

Yes, I should have added I was using Mebane Faber's CAPE for Greece and Ireland.
Title: Re: Why are Russian stocks so cheap?
Post by: Mephistopheles on March 08, 2014, 02:36:01 PM
Just a thought, but for a company like lukoil which has American shareholders but also American operations (and around the globe), wouldn't there be consequences for Putin if he decides to take shareholder money? American authorities could cause problems for their American operations for example. Given that they operate (and have shareholders) all over the world I would think that Putin would think twice before treating them as his piggy bank.
Title: Re: Why are Russian stocks so cheap?
Post by: Packer16 on March 08, 2014, 02:40:35 PM
Although the threat is there, I have only seen an example of a firm is owned by a political rival (Yukos).  So I see the saber rattling louder than the actual action here.

Packer
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 09, 2014, 08:18:52 AM
Quote
Putin has already threaten to seize "Western" assets if sanctions are imposed

Which probably means he will seize the Russian assets of companies domiciled in Western countries not that he will seize the shares of American shareholders of Russian companies. To me it would be a pretty stupid move if he did. All it means is that Russian companies would no longer have access to international capital markets which hurts Russian companies and it won't really have any effect on Western countries, governments or powerful stakeholders.

I actually vastly prefer Russia to countries like India which trade at much higher multiples. India is extremely corrupt but on top of this its a democracy and I think this is really bad. Most Indian voters are poor and uneducated and all they care about is that politicians hand out goodies. I actually think a Russian dictatorship is much better protector of property rights than Indian democracy. Putin and his cronies aren't stupid. He may beat the goose and kick it but he won't kill it. Indian voters on the other hand are quite happy to beat it close to death, not eat it and then leave it out on the street where it can be half eaten by feral dogs.
Title: Re: Why are Russian stocks so cheap?
Post by: one-foot-hurdles on March 09, 2014, 03:44:07 PM
Quote
Putin has already threaten to seize "Western" assets if sanctions are imposed

Which probably means he will seize the Russian assets of companies domiciled in Western countries not that he will seize the shares of American shareholders of Russian companies. To me it would be a pretty stupid move if he did. All it means is that Russian companies would no longer have access to international capital markets which hurts Russian companies and it won't really have any effect on Western countries, governments or powerful stakeholders.

I actually vastly prefer Russia to countries like India which trade at much higher multiples. India is extremely corrupt but on top of this its a democracy and I think this is really bad. Most Indian voters are poor and uneducated and all they care about is that politicians hand out goodies. I actually think a Russian dictatorship is much better protector of property rights than Indian democracy. Putin and his cronies aren't stupid. He may beat the goose and kick it but he won't kill it. Indian voters on the other hand are quite happy to beat it close to death, not eat it and then leave it out on the street where it can be half eaten by feral dogs.

Gee thanks for the vivid imagery!
Title: Re: Why are Russian stocks so cheap?
Post by: yadayada on March 09, 2014, 04:35:53 PM
they should change democracy, so you vote for ideas. And when you vote for ideas, they explain to you what the implications of those ideas are. And then when the people have voted, Random people who volunteered from the scientific community will be randomly selected to execute this for a very large compensation. And then after set periods, it will be evaluated how well they executed within the economic cycle, and people will vote if this will have to go on.

Just think how well that would work. You vote, 'let the government take everything!' . Followed by a 'are you sure? This will ruin the economy' and 'would you start a business and create jobs if the government could take it away anytime?'.

And it would eliminate voting for some popular airhead to be your leader. You take some of the human bias out of it, charisma cannot mess with the whole equation here.
Title: Re: Why are Russian stocks so cheap?
Post by: anders on March 10, 2014, 07:24:43 AM
Cant give a good answer except that well run family companies that know the russian market better than most of us recently put up their russian assets for sale.. That is enough reason for me not to invest in russia no matter the price tag..

Rgds,
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 10, 2014, 02:31:55 PM
"Cant give a good answer except that well run family companies that know the Russian market better than most of us recently put up their Russian assets for sale.. That is enough reason for me not to invest in Russia no matter the price tag"

Good. I am counting on people thinking this way. Too me price tag ALWAYS matters.

Second investing in a stock vs a family business are not the same things. Its quite possible that the family is making the right decision but that it is also true that stocks in Russia are undervalued. And the reverse may also be true. For instance an industry may be extremely profitable and yet stock valuations are unrealistically high.
Title: Re: Why are Russian stocks so cheap?
Post by: Shawn on March 10, 2014, 04:26:32 PM
I don't know about Russia, but what you said about the small caps & them being too small for Putin was very clever. The small cap Russian ETF you mentioned will probably work out well for you.

I wouldn't do it though. If you don't need it then you don't have to do it. There's more economically stable countries, though there may not be as many bargains the bargains are there if you look hard enough. Only Russian companies I can think of that are worth investing in are Lukoil, and perhaps Yukos, maybe even Gazprom too but I don't know enough about that one. For me Russia is outside my circle of competence.

Keep us updated on how it works out though.
Title: Re: Why are Russian stocks so cheap?
Post by: ajc on March 12, 2014, 01:58:46 PM

Intro on Russian conglomerate JSFC Sistema from the ValueAndOpportunity blog:

As the first company to analyse in Russia, I used Sistema, a major Russian conglomerate.
Why so?

Three major reasons from my side:
- Sistema is a conglomerate, so it offers a broader exposure to Russia
- it seems to be a large and relatively well-connected company. So the risk of being bullied like Pharmstandard looks remote
- Shares of the company are listed widely, in the US, London and Germany

This is how Sistema describes itself on its homepage:
"Incorporated in 1993, Sistema is now one of Russia’s top-10 companies by revenues and is one of the largest publicly traded diversified holding companies in the world. Sistema was ranked number 315 in the Fortune Global 500 list."

Valuation wise, Sistema looks ridiculously cheap as many Russian companies:

P/E 4.9      P/B 0.9        Div. Yield 2.6%         Market Cap: 7.1 bn EUR            EV/EBIT ~4.1x


http://valueandopportunity.com/2014/03/12/emerging-markets-part-3-jsfc-sistema-adrs-isin-us48122u2042-is-a-russian-company-investible-1/ (http://valueandopportunity.com/2014/03/12/emerging-markets-part-3-jsfc-sistema-adrs-isin-us48122u2042-is-a-russian-company-investible-1/)

Title: Re: Why are Russian stocks so cheap?
Post by: ajc on March 17, 2014, 03:14:40 PM

Part 2 (the substance) of the JSFC Sistema thesis from Value And Opportunity. Looks interesting.

http://valueandopportunity.com/2014/03/17/emerging-markets-part-3-jsfc-sistema-adrs-isin-us48122u2042-is-a-russian-company-investible-2/ (http://valueandopportunity.com/2014/03/17/emerging-markets-part-3-jsfc-sistema-adrs-isin-us48122u2042-is-a-russian-company-investible-2/)

Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 18, 2014, 09:07:12 AM
Quote
Part 2 (the substance) of the JSFC Sistema thesis from Value And Opportunity. Looks interesting.

I really like this website. The thesis is very interesting however I am strongly against investing in individual Russian stocks (changed mind about Gazprom). This is one case where diversificaiton is your friend. There are several reasons for this:

On the website itself the author describes a situation:
Quote
Some readers may recollect that I invested into the Russian pharmaceutical company Pharmstandard last year and was very lucky to get out early before the stock subsequently lost more than 50%. My interpretation of this experience is that an actually relatively well-managed company got bullied into buying a worthless company and thereby shifting a lot of company funds to some shady people. 


This is the peril of corruption in Russia and its a big danger when investing in individual stocks. Corruption/No Rule of Law results in very large and unpredictable idiosyncratic risks but has a much smaller effect when you diversify.

In addition the RSXJ has a P/E of 4.19 and a price to book of 0.31 (see attached RSXJ factsheet). That is a difficult hurdle for any individual stock to exceed. Sistema for instance is more expensive and has far greater idiosyncratic risk.

The only way investing in an individual stock can be justified given the huge idiosyncratic risk is if it is extremely cheap. And then you have to make sure that its investible and the better risk/reward characteristics of the stock have to be large enough to outweigh the additional research effort involved. I would argue there are probably no individual Russian stocks that satisfy this criterion.
Title: Re: Why are Russian stocks so cheap?
Post by: blainehodder on March 18, 2014, 09:45:03 AM
I agree,

It is hard to go wrong with the ETFs at these levels. I am also long Gazprom though.  Valuation is just insane.

http://en.wikipedia.org/wiki/Russia_in_the_European_energy_sector#Natural_gas_deliveries

Management aside, that is a moat.

Tough to lose on this in my opinion.
Title: Re: Why are Russian stocks so cheap?
Post by: gg on March 18, 2014, 10:20:17 AM
http://www.zerohedge.com/news/2014-03-18/white-house-reveals-biggest-threat-russia-yet-dont-buy-russian-stocks

Title: Re: Why are Russian stocks so cheap?
Post by: ajc on March 19, 2014, 02:19:43 PM
Quote
Part 2 (the substance) of the JSFC Sistema thesis from Value And Opportunity. Looks interesting.

I really like this website. The thesis is very interesting however I am strongly against investing in individual Russian stocks (changed mind about Gazprom). This is one case where diversificaiton is your friend. There are several reasons for this:

On the website itself the author describes a situation:
Quote
Some readers may recollect that I invested into the Russian pharmaceutical company Pharmstandard last year and was very lucky to get out early before the stock subsequently lost more than 50%. My interpretation of this experience is that an actually relatively well-managed company got bullied into buying a worthless company and thereby shifting a lot of company funds to some shady people. 


This is the peril of corruption in Russia and its a big danger when investing in individual stocks. Corruption/No Rule of Law results in very large and unpredictable idiosyncratic risks but has a much smaller effect when you diversify.

In addition the RSXJ has a P/E of 4.19 and a price to book of 0.31 (see attached RSXJ factsheet). That is a difficult hurdle for any individual stock to exceed. Sistema for instance is more expensive and has far greater idiosyncratic risk.

The only way investing in an individual stock can be justified given the huge idiosyncratic risk is if it is extremely cheap. And then you have to make sure that its investible and the better risk/reward characteristics of the stock have to be large enough to outweigh the additional research effort involved. I would argue there are probably no individual Russian stocks that satisfy this criterion.

Thanks for the fact sheet.

Those are all good points, although I think Nate has suggested on another thread that buying a basket of individual stocks (hopefully ones with less currency risk eg. oil co's, etc) is another possible approach and I agree with that.
If I was going to push the Sistema thesis, I'd say their Bashneft holding could possibly be undervalued (ie. their amazing reserve replacement ratio) and that might give you a lower true P/B multiple.
Also, if I was being really generous I'd say that Yevtushenkov seems to have negotiated intelligently with the Kremlin in the past and that together with Sistema's size therefore means that politically it is less likely to have a crappy deal forced on it and also they could potentially avoid far worse outcomes.

All that said though, I think the main argument you're making is very well put. And after thinking about this quite a bit in recent weeks, I've decided to just mark Russia as being in the 'too hard' category.
Right now, I figure there are a handful of businesses in places with rule of law, accounting standards, currencies and so on where I'm confident of getting my principal back together with a decent return and so as interesting as various Russian opportunities seem to be, I can't help but remind myself about my not-insignificant general ignorance of the place and why that shouldn't ever be substantially discounted when I'm trying to arrive at a final decision.

So, I'll skip it and stick with what I am comfortable with. Live to fight another day and maybe then some. Clearly, worse things have happened. Many Russian businesses obviously have the scars and maimings to prove it.

Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on March 19, 2014, 06:38:08 PM
Russia Billionaires Buying Stock as BofA Says Bottom Near



http://www.bloomberg.com/news/2014-03-19/russia-billionaires-buying-stock-as-bofa-says-bottom-near.html (http://www.bloomberg.com/news/2014-03-19/russia-billionaires-buying-stock-as-bofa-says-bottom-near.html)
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 19, 2014, 09:14:39 PM
"Right now, I figure there are a handful of businesses in places with rule of law, accounting standards, currencies and so on where I'm confident of getting my principal back together with a decent return and so as interesting as various Russian opportunities seem to be, I can't help but remind myself about my not-insignificant general ignorance of the place and why that shouldn't ever be substantially discounted when I'm trying to arrive at a final decision."

Interesting. I originally wrote a much longer answer to your question that answered this point. I too am similarly extremely ignorant of Russia. And I agree with you that individual Russian stocks are in the too hard category. But I don't think this is true for the ETF. I actually think the ETF case is quite straightforward given valuations. My basic strategy is classic Templeton. From his wonderful book, the Templeton Plan:

p. 64-65:
"he decided to buy every stock on the exchanges that was selling for no more than a dollar per share.....He asked his former boss...to place the order...He warned Templeton that he would do so reluctantly because 37 of the companies on hist list were in bankruptcy. "That doesn't matter," Templeton told him. "Buy everything, whether it's in bankruptcy or not"

p. 67
"an investor from New York who is an expert in Argentinian stocks observed to Templeton that because of Argentina's serious inflation and political instability, prices of their stocks were remarkably depressed...Templeton agreed to put up the capital, opened and an account with a bank in Argentina, and bought 800000 worth of Argentinian stocks at bargain prices"

And finally Warren Buffett on diversification:
"“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

I am ignorant and mean to go on being ignorant about Russia. So diversification makes a lot of sense.
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on March 20, 2014, 01:39:22 AM
is there a way to be sure that the corruption in russia doesn't extend to oil&gas companies' reserve estimates?

if these numbers are as inflated as people familiar with o&g in russia say, many of these companies are overvalued and very badly managed. being p/e 5 is good only if you can make that level of profits for an extended period of time.
Title: Re: Why are Russian stocks so cheap?
Post by: tombgrt on March 20, 2014, 03:44:36 AM
Does anyone know if you can buy Lukoil directly on the russian stock market (LKOH:RM ?) through IB?
Title: Re: Why are Russian stocks so cheap?
Post by: oddballstocks on March 20, 2014, 05:42:08 AM
Quote
Part 2 (the substance) of the JSFC Sistema thesis from Value And Opportunity. Looks interesting.

I really like this website. The thesis is very interesting however I am strongly against investing in individual Russian stocks (changed mind about Gazprom). This is one case where diversificaiton is your friend. There are several reasons for this:

On the website itself the author describes a situation:
Quote
Some readers may recollect that I invested into the Russian pharmaceutical company Pharmstandard last year and was very lucky to get out early before the stock subsequently lost more than 50%. My interpretation of this experience is that an actually relatively well-managed company got bullied into buying a worthless company and thereby shifting a lot of company funds to some shady people. 


This is the peril of corruption in Russia and its a big danger when investing in individual stocks. Corruption/No Rule of Law results in very large and unpredictable idiosyncratic risks but has a much smaller effect when you diversify.

In addition the RSXJ has a P/E of 4.19 and a price to book of 0.31 (see attached RSXJ factsheet). That is a difficult hurdle for any individual stock to exceed. Sistema for instance is more expensive and has far greater idiosyncratic risk.

The only way investing in an individual stock can be justified given the huge idiosyncratic risk is if it is extremely cheap. And then you have to make sure that its investible and the better risk/reward characteristics of the stock have to be large enough to outweigh the additional research effort involved. I would argue there are probably no individual Russian stocks that satisfy this criterion.

Thanks for the fact sheet.

Those are all good points, although I think Nate has suggested on another thread that buying a basket of individual stocks (hopefully ones with less currency risk eg. oil co's, etc) is another possible approach and I agree with that.
If I was going to push the Sistema thesis, I'd say their Bashneft holding could possibly be undervalued (ie. their amazing reserve replacement ratio) and that might give you a lower true P/B multiple.
Also, if I was being really generous I'd say that Yevtushenkov seems to have negotiated intelligently with the Kremlin in the past and that together with Sistema's size therefore means that politically it is less likely to have a crappy deal forced on it and also they could potentially avoid far worse outcomes.

All that said though, I think the main argument you're making is very well put. And after thinking about this quite a bit in recent weeks, I've decided to just mark Russia as being in the 'too hard' category.
Right now, I figure there are a handful of businesses in places with rule of law, accounting standards, currencies and so on where I'm confident of getting my principal back together with a decent return and so as interesting as various Russian opportunities seem to be, I can't help but remind myself about my not-insignificant general ignorance of the place and why that shouldn't ever be substantially discounted when I'm trying to arrive at a final decision.

So, I'll skip it and stick with what I am comfortable with. Live to fight another day and maybe then some. Clearly, worse things have happened. Many Russian businesses obviously have the scars and maimings to prove it.

I spent some time on this and I'm coming to the conclusion that it's much cheaper and easier to buy the Russian ETF.  Someone mentioned on another thread, or on a blog that good hunting ground are Ukrainian companies that IPO'ed in the last decade.  They have a similar profile to the Russian stocks mentioned.

I'll probably pick up the ETF mentioned above today, and then nibble at the edges with a few other companies if they are cheaper.  The problem I'm struggling with is how will these stocks rebound?  If Russia is considered a terribly risky place then maybe fair value is a 10x P/E, that's a double from here.  If something like Avangardco re-rated to a 10x P/E that's a 5x gain.  If they just re-rate to a 5x P/E that's a 2.5x gain.

Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 20, 2014, 10:22:10 AM
Quote
The problem I'm struggling with is how will these stocks rebound?
\

I will answer this with a quote from a brilliant investor who I avidly follow:

"When something is cheap enough things will happen, always has and always will"
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 20, 2014, 10:39:09 AM
Avangardco does look very interesting.
Title: Re: Why are Russian stocks so cheap?
Post by: matjone on March 20, 2014, 05:26:49 PM
I bought the russian small cap index.  I wavered between that and the large cap index. The large cap has a bit lower pe and the businesses are earning higher margins and returns on equity.
Title: Re: Why are Russian stocks so cheap?
Post by: turar on March 20, 2014, 09:53:42 PM
Where did you see that large cap P/E? According to this link, small cap P/E is better: http://etfdb.com/compare/lowest-pe-ratio/
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on March 20, 2014, 10:24:28 PM
Where did you see that large cap P/E? According to this link, small cap P/E is better: http://etfdb.com/compare/lowest-pe-ratio/




https://www.vaneck.com/market-vectors/equity-etfs/rsx/portfolio-analytics/


https://www.vaneck.com/market-vectors/equity-etfs/rsxj/portfolio-analytics/
Title: Re: Why are Russian stocks so cheap?
Post by: Phaceliacapital on March 21, 2014, 02:46:22 AM
CTC is currently yielding a 11% FCF yield and +/- 8% dividend yield.
Title: Re: Why are Russian stocks so cheap?
Post by: Phaceliacapital on March 21, 2014, 02:59:52 AM
Regarding Gazprom, it's not a good company to invest in because it's Putin's "playground" and he raises/lowers prices whenever he wants.. However, it's fair to assume that he will always target good overall profitability, right?

So as a shareholder, does this really impact us? Is it not more the case of having a company that either makes some money, or a shitload of money?

If you look at Gazprom's position, it's incredible, right?

1) Their proven gas reserves are 10x (!!) ExxonMobils and PetroChina (fun fact, they're 30x Lukoils)
2) Their total pipelines length is 168 thousand km! (including a shitload of compressor stations, distribution stations etc etc). How do you replace this?
Title: Re: Why are Russian stocks so cheap?
Post by: matjone on March 21, 2014, 06:03:12 AM
Where did you see that large cap P/E? According to this link, small cap P/E is better: http://etfdb.com/compare/lowest-pe-ratio/

I've been a little confused yesterday about this.  I believe yahoo is using morningstar's data, which is forward looking, for its fund info.

 A few days ago someone here posted a pdf of the RSXJ which had the pe at 4.19 on feb 28.  On the chart I looked up for feb 28 the price ranged from 35.55 - 35.02 which would imply earnings of at least 8.36/shr and a current pe of only  3.6.  I really don't know how to account for the different numbers I'm seeing.

Also - does anyone else feel uneasy owning ETFs in general?  http://www.cnbc.com/id/39309280
Title: Re: Why are Russian stocks so cheap?
Post by: oddballstocks on March 21, 2014, 06:55:48 AM
I purchased shares in both, more in the small cap ETF, but I figured why not own the large cap one as well.  They are both cheap, why not own both?
Title: Re: Why are Russian stocks so cheap?
Post by: matjone on March 21, 2014, 01:30:35 PM
On the fact sheet dated 12/31/13 for the ERUS large cap etf the pe was 10.07 and p/b of 1.56, and it is down about 20% from there.  So it seems cheap but not super cheap.  The other one that I can buy on IB is RBL, it is a little cheaper on p/b basis and on earnings, but their fact sheet is using forward earnings like other places I've seen online.
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 21, 2014, 09:00:52 PM
Quote
I purchased shares in both, more in the small cap ETF, but I figured why not own the large cap one as well.  They are both cheap, why not own both?

I agree and its quite possible that the large cap etf is cheaper if you take into account the higher quality and strength of larger cap companies.
Title: Re: Why are Russian stocks so cheap?
Post by: hellsten on March 22, 2014, 01:15:17 AM
The World's Riskiest Stock Market?
http://online.wsj.com/news/articles/SB10001424052702304026304579449452258692302

Quote
At the end of February, Russia had a price/earnings ratio of 6.5 by that method, according to Cambria Investment Management. The U.S. had a P/E of 25.

The firm looked at the long-term P/E ratios of 44 countries at the end of each year since 1980 and found that a country's P/E dropped below 7 only 28 times out of more than 800 cumulative market years.

But investing in such a scenario paid handsomely. After its P/E sank below 7, a country's stock market on average went on to return 31% over the following year and 21% annually over the next five years, according to Cambria.

Quote
Occasionally, stocks of countries facing geopolitical crises never rebound. After the Russian Revolution in 1917, the country's stock market ceased to exist for more than 70 years.

Putin doesn't seem to be addicted to drugs and he hasn't suffered a stroke like some past Russian leaders. I'm betting people will forget Crimea as quickly as they forgot about Chechnya and Georgia.
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on March 22, 2014, 07:16:44 AM
The World's Riskiest Stock Market?
http://online.wsj.com/news/articles/SB10001424052702304026304579449452258692302

Quote
At the end of February, Russia had a price/earnings ratio of 6.5 by that method, according to Cambria Investment Management. The U.S. had a P/E of 25.

The firm looked at the long-term P/E ratios of 44 countries at the end of each year since 1980 and found that a country's P/E dropped below 7 only 28 times out of more than 800 cumulative market years.

But investing in such a scenario paid handsomely. After its P/E sank below 7, a country's stock market on average went on to return 31% over the following year and 21% annually over the next five years, according to Cambria.

Quote
Occasionally, stocks of countries facing geopolitical crises never rebound. After the Russian Revolution in 1917, the country's stock market ceased to exist for more than 70 years.

Putin doesn't seem to be addicted to drugs and he hasn't suffered a stroke like some past Russian leaders. I'm betting people will forget Crimea as quickly as they forgot about Chechnya and Georgia.

Putin can't go too far. I actually think that Putin is good for investors. He is not a socialist. He is extremely popular and so there is no risk of regime change or revolution. He is rational. The people who have a lot of the input into the regime are oligarch's with huge business interests that will effectively act as a break against hugely irrational economic decisions.
Title: Re: Why are Russian stocks so cheap?
Post by: yadayada on March 22, 2014, 07:32:35 AM
i dont think he is that popular. He is being tolerated by the russian people. There is rampant corruption, worse then ever. And the economy relies more then ever  on oil and gas. For example, his campaign where he is shown playing the piano, riding a horse with his shirt off and doing other macho shit wasn't taken very well by the russian people.

It is really difficult to start a small business and the majority of the russian people work government jobs. For now russia is probably safe, and i dont really know what could happen to shake this fragile balance. But russia mostly imports stuff, it doens't produce very much. So with like 7% inflation, buying power is going down rapidly with so much dependence on exports.

I think if the economy collapses, then you could have lots of social unrest. And alot of entrepreneurs and smaller businesses fleeing the country, it doesn't look like the future of russia looks that rosy. Especially if some scientific break through is reached where we will rely alot less on oil and gas.

But that is probably at least another 10 years away.
Title: Re: Why are Russian stocks so cheap?
Post by: matjone on March 22, 2014, 07:50:47 AM
I think I am talking to myself, but I ran through the numbers on each of the ERUS holdings and the p/b for it is 60%, so  I think morningstar's numbers are accurate.  I am not sure how they got 1.56 p/b on the eoy fact sheet.  Russia seems like a decent gamble at this price but I probably wouldn't put too much in it because of the risk.
Title: Re: Why are Russian stocks so cheap?
Post by: thepupil on March 22, 2014, 09:53:01 AM
I like sberbank and have 2% in the ADR with the intention to build as i learn more (and verify info about the ADR, I was undisciplined and was buying when there was blood in the streets before I could confirm all the particulars.

I'm sure it's super corrupt and has  all kinds of issues, but they make money and pay a dividend and grew book value by like 10x since 2001.

Sahm of Kerrisdale had a nice writeup in VIC about 30% ago (can be viewed on delay access).



http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/107293
Title: Re: Why are Russian stocks so cheap?
Post by: thepupil on March 22, 2014, 09:56:28 AM
Also is be aware that the big indices and ETFs probably include the more expensive internet companies like yandex , mail.ru, and some other ones I can't think of. These are much more garpy than the deep value energy and financials
Title: Re: Why are Russian stocks so cheap?
Post by: EliG on March 29, 2014, 08:48:42 PM
The political economy of Russian oil and gas
http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economy-of-russian-oil-and-gas

That was a very good read. Russian petro-economy is a mess.
Title: Re: Why are Russian stocks so cheap?
Post by: randomep on March 31, 2014, 12:17:48 PM
The political economy of Russian oil and gas
http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economy-of-russian-oil-and-gas

That was a very good read. Russian petro-economy is a mess.

+1

makes me think putin just wants to preserve power, not world conquest, he isn't hitler.......
Title: Re: Why are Russian stocks so cheap?
Post by: constructive on March 31, 2014, 12:46:18 PM
The political economy of Russian oil and gas
http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economy-of-russian-oil-and-gas

That was a very good read. Russian petro-economy is a mess.

Thanks for the link. The negative comments on Gazprom were well stated. I'm a little disappointed they didn't also provide a view on Lukoil.

I wonder how much of the disconnect between US and Europe gas prices can be attributed to our more speculative market for junior resource companies (US companies being willing to pursue projects with lower rates of return), versus physical constraints.
Title: Re: Why are Russian stocks so cheap?
Post by: Viking on March 31, 2014, 04:15:10 PM
Looks like we may have seen the lows for Russian stocks for this crisis. Looks like Putin is happy to take Crimea and call it a day; big strategic win for Russia. As others have mentioned previously, RSX is a pretty easy way to get exposure (thanks for doing most of the leg work) and it is still very cheap.

Future looks pretty bleak for Ukraine. Perhaps things go sideways until presidential elections are held and we see who gets in and what their plan is. Russia likely is happy with an economically messed up Ukraine as it makes them very dependent on Russia.

Putin must really like capitalism; very easy to game the system and make some serious money. (Sell high and then buy low.)
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on March 31, 2014, 04:50:38 PM
Hi Viking - hopefully Putin is done, but keep in mind that Hitler took over the Rhineland, Austria, Czechoslovakia and Poland over a number of years, not weeks or months.  If Crimea is his Rhineland, he might move on Ukraine a year from now. 

That being said, I've added to Gazprom and Lukoil lately.

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: Viking on March 31, 2014, 06:19:01 PM
Lance, I do not agree with the comparison between Putin and Hitler. To me Russia of 2014 does not look like Germany of 1936. Russia is weak and must be very careful. Having said that, it would not surprise me to see Putin carve off parts of Eastern Ukraine should he be given the opportunity. Should Ukraine enter a bloody civil war then perhaps the Russians will be given their opportunity. My read is Putin has acted very rationally (from the Russian perspective). However, if they want more of the Ukraine the 'costs' will increase dramatically and I think he is too pragmatic to take that risk on; the Russian economy is too linked to the rest of the work for Putin to get too greedy.

Yes, there are significant risks that the situation could devolve. However, I now think the better odds are that the situation muddles along with Russian stocks moving up 15 or 20% over the next few months. Reading the tea leaves today, I like the risk / reward.
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on April 01, 2014, 07:21:30 PM
Viking, I agree.  I don't see Putin doing much, but was just saying that this thing would probably play out over years, not months.  I like the risk/reward here as well.  I wish I had bought one of the etfs and not just the two oil equities during the big sell off.

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: Phaceliacapital on April 02, 2014, 05:37:52 AM
http://blogs.barrons.com/emergingmarketsdaily/2014/03/14/deutsche-why-russia-should-be-a-frontier-market/

Smith argues Russia deserves a frontier market status, or a class of its own, not because of geopolitical risk. Rather, Russia faces a broad-based corporate governance issue: Enterprises forgo corporate profits at the bidding of the politicians.
Title: Re: Why are Russian stocks so cheap?
Post by: vinod1 on April 02, 2014, 06:29:56 AM
Rather, Russia faces a broad-based corporate governance issue: Enterprises forgo corporate profits at the bidding of the politicians.

This is pretty much the norm in every emerging market country. Petrobras in Brazil, ONGC & SBI in India to name just a few for example.

Article is BS.

Vinod
Title: Re: Why are Russian stocks so cheap?
Post by: Phaceliacapital on April 02, 2014, 06:36:57 AM
He makes the case that it isn't the same:

http://ftalphaville.ft.com/2014/04/01/1817912/hello-alphaville-this-is-rock-n-roll/

(http://ftalphaville.ft.com/files/2014/04/Deutsche-on-state-controlled-1-272x421.png)
Title: Re: Why are Russian stocks so cheap?
Post by: vinod1 on April 02, 2014, 07:04:36 AM
He makes the case that it isn't the same:

http://ftalphaville.ft.com/2014/04/01/1817912/hello-alphaville-this-is-rock-n-roll/

(http://ftalphaville.ft.com/files/2014/04/Deutsche-on-state-controlled-1-272x421.png)

You are not going to get Buffett style corporate governance in Russia or in any of the emerging markets. It is going to be a continuum but at 4-5 times PE, even if you assume 30% of earnings are going to be stolen or misdirected into unprofitable ventures you have a decent margin of safety.

Vinod
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on April 03, 2014, 05:16:26 AM
has anyone looked at X5 retail holdings? second largest retailer in russia, saw some finnish russian value funds had picked this up. owned 47,86% by alfa group, listed in london.
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on April 03, 2014, 09:49:36 AM



As Russia Stumbles, Gazprom Comes Up $910 Billion Short



http://www.bloomberg.com/news/2014-04-03/gazprom-s-910-billion-gaffe-shows-putin-economy-waning.html (http://www.bloomberg.com/news/2014-04-03/gazprom-s-910-billion-gaffe-shows-putin-economy-waning.html)
Title: Re: Why are Russian stocks so cheap?
Post by: TwoCitiesCapital on April 03, 2014, 10:24:22 AM
I've been thinking about Russia's chronic P/E problem and have begun to wonder if it really matters as long as the stocks maintain high dividends.

You have the opportunity to buy a stock that trades at 100 and pays a dividend of 10. Assuming no growth we can consider two scenarios over a 15 year holding period.
1) the stock doubles and dividend proceeds are reinvested
2) the stock remains at the same price and proceeds are reinvested.

Does it surprise you that investors actually stand to make more in scenario two? I guess my point is that the ability to reinvest at chronically depressed prices is a boon for investors over the long term. Obviously you could make the argument that once it doubles you could sell and invest in something else that subsequently doubles, but there's no guarantee those opportunities will be around or revalue quickly.

I don't think chronic discounts are a bad thing. Rather, you can invest in them and reinvest the dividends in the chronically undervalued security when you have difficulty finding better opportunities and then reinvest the dividends in other companies once you think you've found a quality double. These are simply a vehicle that allow you to compound the free cash flow coming into your portfolio each quarter rather than compounding capital gains. You wouldn't ever need to hold much cash if you knew you could reliably have a portfolio that would yield 10% in cash each year.

Am I wrong to think this way? It almost seems like the same reason Gio likes Lancashire. It replenishes his cash.

Title: Re: Why are Russian stocks so cheap?
Post by: stylized_fact on April 03, 2014, 07:34:46 PM
Here is an interesting interview with Prosperity Capital's Mattias Westman

https://www.youtube.com/playlist?list=PLECDA4D73054652BD
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on April 03, 2014, 08:21:26 PM
I've been thinking about Russia's chronic P/E problem and have begun to wonder if it really matters as long as the stocks maintain high dividends.

You have the opportunity to buy a stock that trades at 100 and pays a dividend of 10. Assuming no growth we can consider two scenarios over a 15 year holding period.
1) the stock doubles and dividend proceeds are reinvested
2) the stock remains at the same price and proceeds are reinvested.

Does it surprise you that investors actually stand to make more in scenario two? I guess my point is that the ability to reinvest at chronically depressed prices is a boon for investors over the long term. Obviously you could make the argument that once it doubles you could sell and invest in something else that subsequently doubles, but there's no guarantee those opportunities will be around or revalue quickly.

I don't think chronic discounts are a bad thing. Rather, you can invest in them and reinvest the dividends in the chronically undervalued security when you have difficulty finding better opportunities and then reinvest the dividends in other companies once you think you've found a quality double. These are simply a vehicle that allow you to compound the free cash flow coming into your portfolio each quarter rather than compounding capital gains. You wouldn't ever need to hold much cash if you knew you could reliably have a portfolio that would yield 10% in cash each year.

Am I wrong to think this way? It almost seems like the same reason Gio likes Lancashire. It replenishes his cash.

This is somewhat akin to Buffett's hope for a dwindling IBM stock price. I don't think it's illogical. But of course if the goal is to maximize your investment in the company you're far better off having the company repurchase stock than reinvesting your dividends.
Title: Re: Why are Russian stocks so cheap?
Post by: EliG on April 08, 2014, 07:02:29 PM
Russia Urges Companies to Delist Abroad
http://www.bloomberg.com/news/2014-04-08/russia-asks-companies-to-delist-from-bourses-abroad-for-security.html

Quote
Russia urged companies to delist their shares from overseas stock exchanges and trade in Moscow in an effort to safeguard them as international sanctions mount against the country after its takeover of Crimea.

“This is a question of economic security,” First Deputy Prime Minister Igor Shuvalov told reporters after a government meeting near Moscow today. Speaking later in a telephone interview, he said the move isn’t mandatory and that companies should make independent decisions.

...

With foreign investors holding 70 percent of Russia’s stock free-float, a move away from Western markets would stoke a “further selloff,” according to Elena Loven, who helps manage more than 1 billion euros ($1.4 billion) in Russian stocks at Swedbank Robur in Stockholm.
Title: Re: Why are Russian stocks so cheap?
Post by: plato1976 on April 08, 2014, 07:39:14 PM
which russian stock is trading at 10% dividend yield ?

I've been thinking about Russia's chronic P/E problem and have begun to wonder if it really matters as long as the stocks maintain high dividends.

You have the opportunity to buy a stock that trades at 100 and pays a dividend of 10. Assuming no growth we can consider two scenarios over a 15 year holding period.
1) the stock doubles and dividend proceeds are reinvested
2) the stock remains at the same price and proceeds are reinvested.

Does it surprise you that investors actually stand to make more in scenario two? I guess my point is that the ability to reinvest at chronically depressed prices is a boon for investors over the long term. Obviously you could make the argument that once it doubles you could sell and invest in something else that subsequently doubles, but there's no guarantee those opportunities will be around or revalue quickly.

I don't think chronic discounts are a bad thing. Rather, you can invest in them and reinvest the dividends in the chronically undervalued security when you have difficulty finding better opportunities and then reinvest the dividends in other companies once you think you've found a quality double. These are simply a vehicle that allow you to compound the free cash flow coming into your portfolio each quarter rather than compounding capital gains. You wouldn't ever need to hold much cash if you knew you could reliably have a portfolio that would yield 10% in cash each year.

Am I wrong to think this way? It almost seems like the same reason Gio likes Lancashire. It replenishes his cash.
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on May 21, 2014, 09:21:52 AM

Russia, China Sign $400 Billion Gas Deal After Decade of Talks


http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html (http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html)
Title: Re: Why are Russian stocks so cheap?
Post by: randomep on May 21, 2014, 10:48:11 AM

Russia, China Sign $400 Billion Gas Deal After Decade of Talks


http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html (http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html)

Plus no invasion of Ukraine after Crimea, russia stocks could go up 50% from here in a year......

Title: Re: Why are Russian stocks so cheap?
Post by: investor-man on May 22, 2014, 04:17:11 PM
Anecdotally, I'm a little shocked that both Gasprom and Lukoil were both down a percent today
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on May 22, 2014, 04:30:41 PM
http://www.streetauthority.com/international-investing/value-guru-just-made-huge-investment-russia-30459722 (http://www.streetauthority.com/international-investing/value-guru-just-made-huge-investment-russia-30459722)


Steve Romick -


According to recent filings, he has established positions in oil and gas giants Lukoil (OTC: LUKOY), Gazprom (OTC: OGZPY) and Rosneft (OTC: OJSCY).
Title: Re: Why are Russian stocks so cheap?
Post by: kai99 on May 22, 2014, 05:20:04 PM
What do you guys think of MBT

http://finviz.com/quote.ashx?t=mbt&ty=c&ta=1&p=d

Looks pretty beaten down

10 year financials earnings per share looks pretty alright

http://www.gurufocus.com/financials/MBT
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on May 28, 2014, 02:16:51 PM
Exxon Doing Russia Business as Usual Amid U.S. Sanctions


http://www.bloomberg.com/news/2014-05-28/exxon-sees-russia-business-as-usual-amid-sanctions.html (http://www.bloomberg.com/news/2014-05-28/exxon-sees-russia-business-as-usual-amid-sanctions.html)
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on July 17, 2014, 06:11:44 AM
bought today after new sanctions are in place, more gazprom, rosneft and sberbank. longer term sanctions are for me not interesting. nobody cares in 2-3 years about them.

also have a already full Position in lukoil
Title: Re: Why are Russian stocks so cheap?
Post by: sys on July 17, 2014, 04:50:56 PM
should i be gathering cash?
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on July 17, 2014, 05:14:11 PM
bought today after new sanctions are in place, more gazprom, rosneft and sberbank. longer term sanctions are for me not interesting. nobody cares in 2-3 years about them.

also have a already full Position in lukoil

I'm thinking of adding to my Lukoil as well.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on July 23, 2014, 02:38:53 AM
http://www.bloomberg.com/news/2014-07-22/putin-under-pressure-has-hermes-bullish-on-stocks.html
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on July 23, 2014, 05:14:25 AM
it's fun to guess whether he'd rather keep his balls, or billionaire friends  ;D

and i guess it's time for the answer to the topic:
-because russia is pretty unpredictable
Title: Re: Why are Russian stocks so cheap?
Post by: augustabound on July 23, 2014, 07:02:14 AM
it's fun to guess whether he'd rather keep his balls, or billionaire friends  ;D

and i guess it's time for the answer to the topic:
-because russia is pretty unpredictable

Mildly off topic here.
Does Canada, or any other nation for that matter, placing sanctions on Russia matter to Russia?
Does it affect them or do they even care?

I can't help but think as the Harper/Baird duo sanction Russia that if Putin even notices, must just be shrugging his shoulders.

Surely Russia has its own maple syrup.  ;D

Title: Re: Why are Russian stocks so cheap?
Post by: randomep on July 23, 2014, 07:55:12 AM
it's fun to guess whether he'd rather keep his balls, or billionaire friends  ;D

and i guess it's time for the answer to the topic:
-because russia is pretty unpredictable

Mildly off topic here.
Does Canada, or any other nation for that matter, placing sanctions on Russia matter to Russia?
Does it affect them or do they even care?

I can't help but think as the Harper/Baird duo sanction Russia that if Putin even notices, must just be shrugging his shoulders.

Surely Russia has its own maple syrup.  ;D

But I heard hockey pucks have tripled in price due to a shortage there. It is a little known fact that hockey pucks is one of canada's biggest exports around the world.
Title: Re: Why are Russian stocks so cheap?
Post by: topofeaturellc on July 23, 2014, 08:09:31 AM
it's fun to guess whether he'd rather keep his balls, or billionaire friends  ;D

and i guess it's time for the answer to the topic:
-because russia is pretty unpredictable

Mildly off topic here.
Does Canada, or any other nation for that matter, placing sanctions on Russia matter to Russia?
Does it affect them or do they even care?

I can't help but think as the Harper/Baird duo sanction Russia that if Putin even notices, must just be shrugging his shoulders.

Surely Russia has its own maple syrup.  ;D

The only sanctions that will actually hurt the economy are those which impact trade with W. Europe, and Nat Gas specifically. That's really the only think Russia exports that isn't a fungible commodity.

The sanctions can make life for Putin's buddies less fun but who knows if that matters.
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on July 23, 2014, 11:35:48 AM
what about beef and milk products? 60% or so is imported. the people there have become accustomed to some sort of quality and i'm not sure they're willing to go back to goods produced in their own country  ;D
Title: Re: Why are Russian stocks so cheap?
Post by: Andy Dufresne on July 23, 2014, 12:03:19 PM
what about beef and milk products? 60% or so is imported. the people there have become accustomed to some sort of quality and i'm not sure they're willing to go back to goods produced in their own country  ;D

jouni - where did you get this interesting statistic? Also, while some people are accustomed to quality, I can tell you from first-hand observation that 99% of Russians don't get Finnish quality, and the 1% that does is likely too indebted to / scared of Putin to argue. The oil & gas exports are, undoubtedly, the main point as they constitute 70%+ of Russia's exports
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on July 23, 2014, 12:31:20 PM
i read it somewhere a while ago, can't remember where. quickly googling i found this:

http://www.meattradenewsdaily.co.uk/news/290112/russia___talking_meat_imports.aspx

40% of the fish is norwegian. another interesting statistic :D they seem pretty dependent on western nations in a lot of areas.

edit: on the topic of gas, they just signed a 400 billion deal to sell gas to china. pipeline supposed to be up and running in 2018.
Title: Re: Why are Russian stocks so cheap?
Post by: augustabound on July 23, 2014, 01:21:33 PM
All good thoughts.

Wish me luck as I embark on my journey to sell hockey pucks to the Russians.   ;D

I had thought of it after but an extended family member is from Estonia.  I remember them saying after the fall of the USSR, their economy hit the skids since most of everything the Soviet regions on the west produced went into the rest of the Soviet Union.
I'm pretty sure he mostly works in Finland now.
Title: Re: Why are Russian stocks so cheap?
Post by: Andy Dufresne on July 23, 2014, 10:28:58 PM
i read it somewhere a while ago, can't remember where. quickly googling i found this:

http://www.meattradenewsdaily.co.uk/news/290112/russia___talking_meat_imports.aspx

40% of the fish is norwegian. another interesting statistic :D they seem pretty dependent on western nations in a lot of areas.

edit: on the topic of gas, they just signed a 400 billion deal to sell gas to china. pipeline supposed to be up and running in 2018.

Thanks jouni1! Definitely something to think about, though I fear that Putin will not really be moved by the lack of steak ....
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on July 25, 2014, 01:44:25 AM
http://www.bloomberg.com/video/mobius-sees-putin-pullback-if-sanctions-are-strong-q063e2S3Sk~f7sO3b3ADqw.html
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on July 29, 2014, 03:51:43 AM
http://www.valuewalk.com/2014/07/jim-grant-buy-hated-hated-stocks/

talks about russian stocks
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on August 05, 2014, 11:36:14 AM
Buying opportunity in 'punished' Russian stocks



http://www.cnbc.com/id/101896354?trknav=homestack:topnews:1 (http://www.cnbc.com/id/101896354?trknav=homestack:topnews:1)
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on August 06, 2014, 05:17:16 AM
what russian stocks should one buy? banks probably? do you (the ones that are buying) have some favorite russian businesses? sberbank and rosneft look nice but the numbers seem a "bit" too good for russian enterprises.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on August 06, 2014, 05:19:46 AM
i have a mix.

sberbank
gazprom
lukoil
rosneft
sistema (conglomerat)
pharmstandard (pharma)
ctc media

i make this Investment a basket Approach. bought to early :D and now nice in the red  8) ;D ;D ;D
Title: Re: Why are Russian stocks so cheap?
Post by: Packer16 on August 06, 2014, 08:21:34 AM
What broker did you use to get access to Pharmstandard?  TIA.

Packer
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on August 06, 2014, 08:37:35 AM
What broker did you use to get access to Pharmstandard?  TIA.

Packer

german ING. and the german ING gets the quotes from UBS i think. but i buy i via ING

cheers :)

Phil
Title: Re: Why are Russian stocks so cheap?
Post by: tombgrt on August 06, 2014, 08:41:13 AM
Hi Phil. Can you also buy South-Korean stocks through ING? I recently inquired to buy them through ING Belgium (and BNP and a few others) but they weren't able to buy individual stocks for me. :(
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on August 06, 2014, 08:55:05 AM
Hi Phil. Can you also buy South-Korean stocks through ING? I recently inquired to buy them through ING Belgium (and BNP and a few others) but they weren't able to buy individual stocks for me. :(

yes i can :). but only the gdr Shares which are a half of a preferred share, but it is the same share. i can only buy hyundai preferred gdr and Samsung preferred gdr share via ing. but thats ok for me. i hold both and think both are undervalued.

hmm sad that you cant buy them via ing belgium, the gdr Shares also not?

cheers phil
Title: Re: Why are Russian stocks so cheap?
Post by: tombgrt on August 06, 2014, 09:26:29 AM
Might be possible to buy those but I mean other south korean stocks aside from those two. I'm not sure I can buy those two through IB either.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on August 06, 2014, 09:36:17 AM
Might be possible to buy those but I mean other south korean stocks aside from those two. I'm not sure I can buy those two through IB either.

no others  i cant buy :/. i would buy lotte chilsung and Lg but cant, sad Story. may i have to open up a IB account too. if you have success with buying those via IB please contact me :)

thanks

phil
Title: Re: Why are Russian stocks so cheap?
Post by: tombgrt on August 06, 2014, 09:45:18 AM
Nope you can't buy those through IB either. I was just wondering whether I could buy the  hyundai and samsung preferreds through IB, I don't know. :)
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on August 28, 2014, 06:22:02 AM
Is anyone adding today?

Long CTCM, LUKOY, OGZPY and SBRCY - watching MBT.

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on September 02, 2014, 08:56:08 PM
Russia-China Prove Cheap to Investors as Money Flows Rise


http://www.bloomberg.com/news/2014-09-02/russia-china-prove-cheap-to-investors-as-money-flows-rise.html (http://www.bloomberg.com/news/2014-09-02/russia-china-prove-cheap-to-investors-as-money-flows-rise.html)
Title: Re: Why are Russian stocks so cheap?
Post by: jouni1 on September 05, 2014, 07:23:45 AM
http://www.aol.com/article/2014/09/03/obama-estonia-will-never-stand-alone/20956308/

Obama: 'Estonia will never stand alone'

http://news.postimees.ee/2911015/estonian-security-police-officer-kidnapped-taken-to-russia-at-gunpoint

Estonian security police officer kidnapped, taken to Russia at gunpoint


 :-\
Title: Re: Why are Russian stocks so cheap?
Post by: ajc on September 16, 2014, 11:23:13 AM

Russia's Sistema Chairman Under House Arrest

http://in.reuters.com/article/2014/09/16/russia-sistema-idINL6N0RH4WC20140916 (http://in.reuters.com/article/2014/09/16/russia-sistema-idINL6N0RH4WC20140916)


Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on September 17, 2014, 05:19:56 AM

Russia's Sistema Chairman Under House Arrest

http://in.reuters.com/article/2014/09/16/russia-sistema-idINL6N0RH4WC20140916 (http://in.reuters.com/article/2014/09/16/russia-sistema-idINL6N0RH4WC20140916)



sistema down 33% this morning  :o

edit: i once own sistema and sold it short ago at around 21€ ($27) with a nice gain.

i bought some today. stock is down more then 50% in one month.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 18, 2014, 02:46:07 AM
Sistema

Taking into account that the inistry of Land and Property Relations of Bashkortostan filed a lawsuit to recover 209 billion rubles ($5.8 billion) from Sistema.

6B is 41% of 14B that is the current stockholder equity in the balance sheet.

33% looks close enough from 41% if we think that there is about 1/5 probability for the lawsuit not to win.

What do you guys think about it?
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 18, 2014, 03:03:21 AM
http://rapsinews.com/news/20140917/272126388.html
http://www.ft.com/intl/cms/s/0/66a2a474-3e7d-11e4-a620-00144feabdc0.html#axzz3DexwEwIc

Who should pay, Vladimir Yevtushenkov the board chairman or the company?
Is this maneuver only to force a sell of Bashneft below market value?

Comments?
Title: Re: Why are Russian stocks so cheap?
Post by: 60°North Investments on September 18, 2014, 03:40:40 AM
This is a very interesting case in many ways. Frankly, I have no idea how this will end but was invested in Sistema and bought yet more yesterday. It does look more and more like the arrest etc. is just to get Bashneft cheaply to other hands, although this naturally might be false. At the moment you can Sistema for less than their stake in MTS is worth. It might be the case though that this doesn't matter in the end, if they decide to take the whole Sistema then this will proove to be another Russian adventure where you're liquidated for basically nothing.

If it's Rosneft boss + Putin going for Bashneft, this will be another textbook example of what happens when you combine greed and power.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on September 18, 2014, 03:59:14 AM
I also think they want bashneft cheaply. They say to him, give as bashneft to this price and your free. But i think the share downturn is to much.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 18, 2014, 06:14:59 AM
Is there a thread for Sistem?
Title: Re: Why are Russian stocks so cheap?
Post by: frommi on September 18, 2014, 07:04:43 AM
I revisited my investment thesis for russia in the last days and came to the conclusion that a lot of things have gotten worse in the last six month. I freaked out in the end and sold all russia related investments (BP,Lukoil,RSXJ) because i have no trust that things get better again as long as Putin has the lead.
Title: Re: Why are Russian stocks so cheap?
Post by: Fat Pitch on September 18, 2014, 08:27:29 AM
I also think they want bashneft cheaply. They say to him, give as bashneft to this price and your free. But i think the share downturn is to much.

What makes you think they’ll offer a price? I think they’ll just take the assets for nothing and jail anyone they can get their hands on.
Title: Re: Why are Russian stocks so cheap?
Post by: randomep on September 18, 2014, 02:58:46 PM
I also think they want bashneft cheaply. They say to him, give as bashneft to this price and your free. But i think the share downturn is to much.

What makes you think they’ll offer a price? I think they’ll just take the assets for nothing and jail anyone they can get their hands on.

sorry to hear you jump ship, I will stay on the way John Templeton told us
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on September 19, 2014, 01:20:31 AM
I also think they want bashneft cheaply. They say to him, give as bashneft to this price and your free. But i think the share downturn is to much.

What makes you think they’ll offer a price? I think they’ll just take the assets for nothing and jail anyone they can get their hands on.

i think they will give him a symbolic Price. not much, but a Price that they can say we bought this Thing legally. thereafter he is a free man or he not cooperate with Putin and co and he will lose everything.
Title: Re: Why are Russian stocks so cheap?
Post by: Poor Charlie on September 19, 2014, 08:50:59 AM
Does anyone have advice on direct access to the Russian market for a US personal account (paperwork/brokerage)?  Are there any international brokers that provide access?  I am looking at MOEX and Sberbank PFDs as well as a few smaller names.  Anything would be helpful.  TIA.
Title: Re: Why are Russian stocks so cheap?
Post by: Fat Pitch on September 19, 2014, 08:59:15 AM
I also think they want bashneft cheaply. They say to him, give as bashneft to this price and your free. But i think the share downturn is to much.

What makes you think they’ll offer a price? I think they’ll just take the assets for nothing and jail anyone they can get their hands on.

sorry to hear you jump ship, I will stay on the way John Templeton told us

I think you quoted the wrong person, I’m just watching this from the sidelines.
Title: Re: Why are Russian stocks so cheap?
Post by: frommi on September 19, 2014, 09:38:45 AM
sorry to hear you jump ship, I will stay on the way John Templeton told us

When you meant me, there is nothing to be sorry about :). Look at the lukoil thread to see how the world in russia looked like 7-8 month ago before the Ukraine crisis. It looked like Putin would be a lot more business friendly in the future etc. And now look at the current dilemma. I see my investment in russia as a failure that cost me no money, so everythings fine.
Think about what will happen in russia with oil prices a lot lower than today. I doubt that any private asset in russia is safe from Putin in such a scenario.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on September 20, 2014, 07:56:42 AM
http://online.wsj.com/articles/sistema-head-yevtushenkov-freed-from-house-arrest-1411135134
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on September 20, 2014, 09:26:09 AM
When you meant me, there is nothing to be sorry about :). Look at the lukoil thread to see how the world in russia looked like 7-8 month ago before the Ukraine crisis. It looked like Putin would be a lot more business friendly in the future etc. And now look at the current dilemma. I see my investment in russia as a failure that cost me no money, so everythings fine.
Think about what will happen in russia with oil prices a lot lower than today. I doubt that any private asset in russia is safe from Putin in such a scenario.

When I started that thread I wrote
Quote
A final variable well worth considering is the country-risk that Russia presents. The Russian Government has proved its ability to commit folly against Russian oil companies. Ten years ago the Russian Government brought down Yukos Oil swiftly and illegally. When I created a mathematical expectation of Lukoil’s stock performance over time, I did so with the assumption there was a 20% chance that the Russian Government would take Lukoil’s stock price to zero.

And then people responded by saying Putin is a maniac. And of course they were right. So I'm not sure what you're talking about.
Title: Re: Why are Russian stocks so cheap?
Post by: frommi on September 20, 2014, 11:21:35 AM
And then people responded by saying Putin is a maniac. And of course they were right. So I'm not sure what you're talking about.

On page 3 or 4 there is this stuff from Jim Rogers where he talks about russia, and i was at that point in time under the impression that the political situation gets better over time. But it has not improved, it got worse and this is just 10 months ago. So when you discounted the political system with 20%, don`t you think you now have to use a higher discount? And since this discount is not really quantifiable, why is the market wrong with the current discount?
The problem here from my point of view is that when the business gets under pressure the political system gets instable, too. Reminds me a bit of buying on margin.

But it was clearly my fault to not see this problems earlier, and i don`t want to blame anyone except me for that. So keep up the good work, i learned a lot!
At BP i underestimated the fines and open business claims, so again this was my fault not anyone else`s.
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on September 20, 2014, 12:07:26 PM
We haven't seen Lukoil's profit materially decrease because of Putin's madness. So I don't yet see a reason to decrease my valuation. If all out war breaks out in Russia, the market price goes to hell, but Lukoil continues making 9+ billion a year, why should my valuation go down?
Title: Re: Why are Russian stocks so cheap?
Post by: fareastwarriors on September 20, 2014, 01:27:57 PM
I sold my Lukoil position for moral reasons. I'm soft like that.
Title: Re: Why are Russian stocks so cheap?
Post by: JBird on September 20, 2014, 01:49:56 PM
I sold my Lukoil position for moral reasons. I'm soft like that.

I'm not far behind you.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 24, 2014, 02:41:43 AM
Russia's Bashneft confirms cancelation of unit sale to Sistema

http://en.itar-tass.com/economy/750966
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 24, 2014, 02:50:29 AM
==
JSFC Sistema, the largest publicly-traded diversified holding company in Russia and the CIS, said the acquisition of a 98% stake in OJSC United Petrochemical Company from the group's subsidiary, JSOC Bashneft, has not been completed.

It said Bashneft retained ownership of UPC.
==

Title: Re: Why are Russian stocks so cheap?
Post by: 60°North Investments on September 26, 2014, 03:49:48 AM
Sistema down another 20% today. Have to say that it's not pleasant to look at all. Now it's priced at 5bUSD EV, which is less than the value of their stake in MTS. There's all kinds of rumors that they need to pay back Bashneft dividends worth some billions, raise cash, Evtushenkov still being in home arrest etc. It certainly does feel at times whether it's a dumb thing to just hold on (not really cash to buy more) even though it looks worse and worse every week. I'm planning on staying with it though, I've got time to wait and see whether the whole thing gets taken away or what happens (looks like it's priced according to Bashneft stake being taken away). Would be very interesting to know who are the entities on the buying side of all these trades.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 26, 2014, 08:40:56 AM
Sistema breakdown
http://www.reuters.com/article/2014/04/03/jsfc-sistema-idUSnBw035465a+100+BSW20140403

With income attributable to Sistema from bashneft of 1130 over 1992 (in 2013), the value of Sistema without bashneft shoudn't be 67% down from before the CEO was charged with charges?

From 21... This makes 9.24   More or less the current price.

I bought some at 12.58 and I am thinking of buying more if it falls a more.
I might had been too optimistic at 12.58, but 9 looks like a safe floor to buy from.

http://www.ft.com/intl/cms/s/0/452433ec-43fc-11e4-8abd-00144feabdc0.html#axzz3EQXeVgH6
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on September 26, 2014, 09:03:43 AM
I'm watching Sistema.  Added to CTCM this morning.  I'm long LUKOY, OGZPY and SBRCY.  Am also watching MBT.
 

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on September 26, 2014, 08:52:14 PM
What is the long thesis on Sistema?
Title: Re: Why are Russian stocks so cheap?
Post by: 60°North Investments on September 26, 2014, 11:32:38 PM
What is the long thesis on Sistema?

For me the long thesis WAS couple of weeks ago that Sistema was trading at a 30-40% discount to its stakes in MTS and Bashneft, not even considering all the other smaller stakes they have. Now, with the increased possibility of having the Bashneft stake taken away for nothing, I think the case is more like betting on the possibility that the Bashneft stake won't be taken away for 0 and that it's currently trading at a 15% discount to its MTS stake (again not considering the smaller stakes which could surely be worth 1bUSD). It's quite clear to see that the case now looks worse than couple of weeks ago, and depends quite largely on the probability of Bashneft stake being 0 for Sistema. If you give it a +90% chance that Bashneft will be zero, then it seems that today's price isn't a real bargain.
Title: Re: Why are Russian stocks so cheap?
Post by: peterism on September 27, 2014, 12:14:43 AM
IMHO Oil, telecommunications and media are strategic for current rulers of Kremlin.
It will be interesting to see if they go after these assets of Sistema as well?

This week on Tuesday legislators in RU approved changes to legislation regarding ownership of
media companies. Foreign owners will be allowed to own max 20% from share capital
of media companies. Lets see how CTCM will deal with that.   
Title: Re: Why are Russian stocks so cheap?
Post by: 60°North Investments on September 27, 2014, 12:23:02 AM
IMHO Oil, telecommunications and media are strategic for current rulers of Kremlin.
It will be interesting to see if they go after these assets of Sistema as well?

This week on Tuesday legislators in RU approved changes to legislation regarding ownership of
media companies. Foreign owners will be allowed to own max 20% from share capital
of media companies. Lets see how CTCM will deal with that.

I can't say I know this for sure, but my guess is that it's going to be one difficult battle for Kremlin to get Sistema's stake in MTS as much of it is listed in the US. The plan of listing the Bashneft stake partly in London was perhaps partly an effort in reducing the likelihood of getting wiped out of it.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 29, 2014, 01:45:07 AM
www.sistema.com webpage seems to have been deleted.
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on September 29, 2014, 02:11:52 AM
www.sistema.com webpage seems to have been deleted.

really ugly. i sold out my stake few days ago. made a mistake. sure sistema has had great assets but the government is too big. this was a mistake from me to invest in a Special Situation like this. glad to be out.
Title: Re: Why are Russian stocks so cheap?
Post by: flixil on September 29, 2014, 05:07:49 AM
Sistema webpage is running again with a new press release:

http://www.sistema.com/press/press-releases/2014/09/statement-regarding-sistema%E2%80%99s-stake-in-ojsc-bashneft.aspx
Title: Re: Why are Russian stocks so cheap?
Post by: pocoapoco on September 29, 2014, 10:22:30 AM
CTCM getting crushed today due to the mass media law progressing through parliament.
It's not clear to me how this would affect existing shareholders ...how would they get the ownership below aggregate 20%?  I can't seem to find any good info.
I could imagine some sort of restructure with new shares representing 20% of the company and maybe an exchange offer or something? So you would get mostly cash.

Anyone have a better sense of the outcome of the shares if this passes?
Title: Re: Why are Russian stocks so cheap?
Post by: Packer16 on September 29, 2014, 10:25:36 AM
I think the concern about cap is either a forced buyback for non-Russians or for a dilutive share offering to non-Russian holders.  Either way pretty bad for existing non-Russian shareholders.

Packer
Title: Re: Why are Russian stocks so cheap?
Post by: peterism on September 29, 2014, 10:44:18 AM
CTCM getting crushed today due to the mass media law progressing through parliament.
It's not clear to me how this would affect existing shareholders ...how would they get the ownership below aggregate 20%?  I can't seem to find any good info.
I could imagine some sort of restructure with new shares representing 20% of the company and maybe an exchange offer or something? So you would get mostly cash.

Anyone have a better sense of the outcome of the shares if this passes?

MTG is largest foreign shareholder with 39% stake. I think that they will be politely asked to sell their shares to some government owned/controlled entity or second largest owner Telcrest. Free float is 36%, so they need to reduce it just by 16% to get to 20%.
 
Title: Re: Why are Russian stocks so cheap?
Post by: pocoapoco on September 29, 2014, 11:01:34 AM
Like Packer said I guess the worst case would be existing shareholders would be forced out at a low price.

I presume they would indeed have to reduce free float to structurally prevent non Russians from acquiring shares.  Or perhaps another alternative would be a dual share structure where there is an exchange for "b" shares that foreigners can hold with the same economic rights but no voting/control rights.  Not sure if that would satisfy the legislation

I like the price here economically but who knows what you'll end up with.  I guess that's the bet.
Title: Re: Why are Russian stocks so cheap?
Post by: Palantir on September 29, 2014, 01:43:49 PM
I mean we could also have a situation where your properties are confiscated by Pooty.

In Soviet Russia, stock sells you!
Title: Re: Why are Russian stocks so cheap?
Post by: Viking on September 29, 2014, 03:37:29 PM
Russia RSX ETF is once again trading near 52 week lows. It looks like things have 'stabilized' in the Ukraine (ie not getting worse). Interesting.
Title: Re: Why are Russian stocks so cheap?
Post by: FiveSigma on September 29, 2014, 04:19:16 PM
Viking, what makes you believe "things stabilized" in Ukraine?

Just yesterday 7 Ukrainian soldiers died and nine were wounded from a direct Rebel tank strike into an APC.

There are reports of dozens of Rebel/Russian army artillery and Grad strikes of Donetsk airport, Debal'tsevo, areas close to Mariupol' happening every day.

Russia is continuing to bleed reserves and rouble is continuing to lose ground daily.

Some stabilization!
Title: Re: Why are Russian stocks so cheap?
Post by: Viking on September 29, 2014, 08:40:22 PM
Five Sigma, by 'stabilized', I mean the crisis no longer looks to be escalating further out of control.  I am not suggesting anyone is happy with where everything is at or that it is not a brutal situation for those involved. When I read that the EU is meeting to review whether they will begin removing some sanctions placed on Russia this suggests to me that things are at least not 'escalating'.
Title: Re: Why are Russian stocks so cheap?
Post by: VersaillesinNY on October 23, 2014, 09:17:42 AM
An interesting article by George Soros:

Wake Up, Europe

http://www.nybooks.com/articles/archives/2014/nov/20/wake-up-europe/?insrc=hpss

Quote
Well, you know, I was a human being before I became a businessman.
George Soros

I refused a job in a brickworks because I knew that the further down the social scale you go, the harder you have to work,
because it gets easier to check on your actual output. If they had offered me the job of a manager, I might have taken it. 
For intellectuals, physical labor is doubly difficult: their heads are always somewhere else and their hearts are not in their work.
Tivadar Soros - Maskerado
Title: Re: Why are Russian stocks so cheap?
Post by: rukawa on December 01, 2014, 06:30:30 AM
Pzena is investing in Gazprom:

http://imarketreports.com/the-long-and-short-of-sohn-london-barrons.html
http://www.pzena.com/uploads/documents/Pzena_Investment_Management_Newsletter/PzenaNews4Q13.pdf
Title: Re: Why are Russian stocks so cheap?
Post by: TwoCitiesCapital on December 08, 2014, 10:39:40 AM
I sold out of my small holdings in Russia earlier this year to add to Altius and FNMA as they tanked. I'm looking to get back in when I roll my 401k over into my Roth IRA.

I do have a concern though that I wwas hoping the board could help me with:

1) what would happen to ADR holders in the US if there were some sort of financial sanctions that prevented foreign ownership OR the US simply makes it illegal to transact in Russian investments. Would that simply mean no more buying/selling or would I be forced out of the position and liquidated? Any supporting documentation for similar occurences?

2) I saw commenters on seekingalpha.com claiming they could no longer purchase the shares through fidelity and other US brokers as recently as November. Any of you having issues purchasing/selling shares.

Title: Re: Why are Russian stocks so cheap?
Post by: rpadebet on December 08, 2014, 12:02:07 PM
I sold out of my small holdings in Russia earlier this year to add to Altius and FNMA as they tanked. I'm looking to get back in when I roll my 401k over into my Roth IRA.

I do have a concern though that I wwas hoping the board could help me with:

1) what would happen to ADR holders in the US if there were some sort of financial sanctions that prevented foreign ownership OR the US simply makes it illegal to transact in Russian investments. Would that simply mean no more buying/selling or would I be forced out of the position and liquidated? Any supporting documentation for similar occurences?

2) I saw commenters on seekingalpha.com claiming they could no longer purchase the shares through fidelity and other US brokers as recently as November. Any of you having issues purchasing/selling shares.

Look up what's happening with CTCM for 1).
Title: Re: Why are Russian stocks so cheap?
Post by: matjone on December 08, 2014, 08:19:21 PM
rpadebet - can you provide a link to an explanation of what you are talking about wrt ctcm?
Title: Re: Why are Russian stocks so cheap?
Post by: rpadebet on December 09, 2014, 08:02:11 AM
rpadebet - can you provide a link to an explanation of what you are talking about wrt ctcm?

I am referring to the newly passed russian media law which prohibits non-russians from holding greater than 20% of Russian media assets. What CTCM will do is up in the air. The underlying business is doing ok, but there are real political risks involved even in non-energy and non-bank stocks in Russia.
Title: Re: Why are Russian stocks so cheap?
Post by: tengen on December 15, 2014, 05:11:55 PM
http://www.theguardian.com/world/2014/dec/15/russia-interest-rate-rise-17pc-rouble-collapse-oil-price

Quote
Russia’s central bank has taken drastic action to halt the rouble’s freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%.

Announcement came at roughly 1am Moscow time!
Title: Re: Why are Russian stocks so cheap?
Post by: FiveSigma on December 15, 2014, 05:29:27 PM
That's panic. Central Bank of Russia lost control of the currency market.

Expect a wave of defaults within 3 months.
Title: Re: Why are Russian stocks so cheap?
Post by: EliG on December 15, 2014, 05:30:21 PM
Couldn't happen to a nicer guy.


(http://i.imgur.com/P9hLWEi.jpg)
Title: Re: Why are Russian stocks so cheap?
Post by: AtlCDore on December 15, 2014, 05:47:28 PM
The more I see what's happening in Russia, the more I think there is a great opportunity to be had.  I know things are scary with Putin and Co.  Plus the Ruble is in free-fall but Greece blew up 2+ years ago and a lot of money was made in making investments there.  Going back to mid-90's (and I have to look at my notes in my office), Mexico's Peso blew up but yet those who bought the Mexican stock market made multiples. 

Russia is trading in low single digit P/E levels.  At some point doesn't the reward outweigh the risk and have we reached that point in Russia?

Is anyone looking at Russia?
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on December 15, 2014, 06:31:34 PM
AtlCDore - I'm long CTCM, LUKOY, OGZPY and SBRCY.  Other than CTCM, I'm buying as they go lower - I added to LUKOY today.  At some point I will buy ERUS or RSX, but not sure when. 

Thanks,
Lance
Title: Re: Why are Russian stocks so cheap?
Post by: AtlCDore on December 16, 2014, 01:19:44 PM
Lance,

I went the easy way out and bought some RSX yesterday and some more today.  All we need now is Michelle Caruso Cabrera to be reporting from the street of Moscow to signal a bottom. 

AtlCDore
Title: Re: Why are Russian stocks so cheap?
Post by: VersaillesinNY on January 08, 2015, 07:45:59 AM
A new interesting essay by George Soros.

A New Policy to Rescue Ukraine - January 7, 2015

http://www.nybooks.com/articles/archives/2015/feb/05/new-policy-rescue-ukraine/?insrc=hpss
Title: Re: Why are Russian stocks so cheap?
Post by: phil_Buffett on April 02, 2015, 09:04:53 AM
http://www.bloombergview.com/articles/2015-04-01/russia-s-recovery-won-t-have-to-be-oil-driven
Title: Re: Why are Russian stocks so cheap?
Post by: Liberty on May 12, 2015, 03:14:19 AM
http://www.bloomberg.com/news/articles/2015-05-11/putin-s-34-billion-siberian-hoard-hunted-by-cash-starved-allies
Title: Re: Why are Russian stocks so cheap?
Post by: Jurgis on May 12, 2015, 06:26:58 AM
http://www.bloomberg.com/news/articles/2015-05-11/putin-s-34-billion-siberian-hoard-hunted-by-cash-starved-allies

In Soviet Russia oil invests in you!  8)
Title: Re: Why are Russian stocks so cheap?
Post by: VersaillesinNY on May 12, 2015, 06:44:40 AM
Find attached a contrarian view on investing in Russia from Kopernik Global investors (1.5 Billion AUM).

Russia - It’s not me, it’s you

“Why would you have any money invested in Russian stocks?”
“Why are you so bullish on Russia?”
“Don’t you think Russia is risky?”
“Is Russia un-investable?”
“Are the risks there too murky and complex to even assess?”
“Are there risks there that are unknowable?”
Title: Re: Why are Russian stocks so cheap?
Post by: Jurgis on May 12, 2015, 07:42:20 AM
If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.
Title: Re: Why are Russian stocks so cheap?
Post by: John Hjorth on July 06, 2018, 08:16:39 AM
I'm bumping this topic up, in case there is just some traction to the SBRCY topic in the investment ideas forum going forward. [Which there right now not seems to be.]

Especially for Lance [, if you read this]: Are you still invested in this space?
Title: Re: Why are Russian stocks so cheap?
Post by: TwoCitiesCapital on July 06, 2018, 08:32:49 AM
If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".
Title: Re: Why are Russian stocks so cheap?
Post by: cameronfen on July 06, 2018, 08:55:58 AM
If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".

That's a false equivalence.  We invaded Afiganistan because of 9/11.  The US was attacked, they were harboring the terrorists.  We attacked Iraq for similar rationale.  We thought they had WMDs, we were worried that they would help perpetuate another 9/11 on the US.  We were wrong on all those fronts, however we have withdrawn most of our troops and allowed self autonomy.  While maybe Bush wanted the oil, you basically can't deny that to some extent he wanted to make the world a safer place.  Conversely Russia attacked Crimea because they wanted to increase there sphere of influence and threaten a country moving closer to the West and expand territory.  I concede that the US has done similar things in the past (Vietnam War mainly), but Russia is Machivillian to a degree the US is not.  When we engaged in these wars we ultimately allowed some sort of self autonomy when we left whether we failed or succeeded (Korea) and didn't attempt to colonize these areas.  The US does practice some realpolitik, but also has a reputation of supporting democracies like during the Arab Spring etc.  Russia is neither a democracy and consistently (unlike the US which only sometimes) supports dictators.  The US is neutral to supporting pro-democratic rebels in Syria, Putin supports Assad and his use of chemical weapons. 

Putin also basically controls the entire country.  He assassinates people on foreign soil and at home who are a threat to him (even his own nationals).  The US doesn't do that.  I think the last assassination I have heard the US perform is Osama Bin Ladin and there is no way that is not justified.  Perhaps you can call drone strikes assassinations, but these are typically done in war zones.  Maybe the US assassinates people privately, but Putin certainly does more as we hear about public assassination attempts at least once per year.  Additionally journalists and opposition party protesters have been jailed and killed for no legal reason. 

Furthermore, there is evidence that Putin bombed his own people to catalyze his rise to power.  Sounds like a conspiracy theory and the truth is currently not known, but even a site with as much to lose (being affiliated with the Republican Party) as the National Review has lent credence to this theory: https://www.nationalreview.com/2017/02/russia-apartment-bombings-september-1999-vladimir-putin-fsb-cia/  Major newspapers run this as a fair and not out of right field analysis of how Putin came to power.  The idea that the US and Russia are equally culpable is a false equivalence. 

Whether you agree with it or not, the US spends lots of money on the military and nuclear umbrella so that we can defend our allies from Europe to Japan.  If you consider that being taking advantage of, you basically are conceding that we are helping our allies at our own expense.  One big reason there has not been a global war since the 1990s is because of our enormous military which we use to discourage extremely aggressive and predatory action (even if sometimes it still happens and we still practice it).  Basically yeah sometimes we are Machiavellian in trying to get what we want in foreign policy, but we also spend a lot of money and effort doing good in the world which is more than you can say for Russia. 

Title: Re: Why are Russian stocks so cheap?
Post by: Gregmal on July 06, 2018, 09:07:29 AM
I think the bigger thing is simply that in many countries you have laws and/or various systems of checks and balances that protect shareholder rights. In countries, and with companies where there isn't confidence in the system, what is your recourse as a shareholder? Good luck with a poor corporate governance campaign, proxy fight, court case in Russia...
Title: Re: Why are Russian stocks so cheap?
Post by: John Hjorth on July 06, 2018, 12:03:35 PM
gregmal & cameronfen,

What's your basis for your posts?
Title: Re: Why are Russian stocks so cheap?
Post by: cameronfen on July 06, 2018, 12:19:27 PM
gregmail & cameronfen,

What's your basis for your posts?

I did quote the national review, but its easy to find newspapers where bush was saying he's liberating Iraqi's right  before the iraq war and during.  It's easy to find trump (like see a cnn article) saying the other countries are taking advantage of our miltary which is just a more cynical way of saying that aspect of our foriegn policy is doing the rest of the world a favor.  Killing of journalist and oposition parties just ask Bill Browder also the recent attempted assasination in the UK.  Putin dictatorship (duh I hope you dont need a source for that).  Gregmail is right though the main issue with stocks though is the lack of institutions and corparate governence (again ask bill browder or follow amy company owned by Putin's govt or cronies).  Do you think its a coincidencw that putin and all his friends become billionaires after he camr in power? 
Title: Re: Why are Russian stocks so cheap?
Post by: TwoCitiesCapital on July 06, 2018, 12:45:34 PM
If people want to invest in a country that is run by a fascist dictator, is seriously considering annexation of big swaths of Europe and possibly nuclear war, that's their choice.

Perhaps they should instead think about how to strengthen NATO and EU. Cause at some point it might be too late.

Not all of the businesses there are run by fascist dictators nor does Putin have a sphere of influence in every company. Furher, as bad as I think Putin is, has he really done anything that America hasn't?

He annexed Crimea. The U.S. invaded the Middle East, supposedly, for weapons of mass destruction that were never found and destabilized an entire region in the name of "freedom" while killing more innocent civilians in their invasions and the ensuing wars than those evil dictators ever did. Further, we do unsanctioned air strikes in sovereign airspace, often times without the permission of the country we're operating in, which would be seen as a declaration of war if any other nation tried it.

He meddled in the U.S. elections. The U.S. has meddled in dozens of elections globally and forcibly removes dictators it doesn't like, at will, while supporting other families/governments that are just as terrible but give us oil. Further, tapes revealed that the U.S. was meddling in the Ukranian election that resulted in the pro-NATO candidate winning which prompted Russia to act since "enemies" were now on it's border.

I don't support Putin, but it would be hypocritical of me to say I won't invest in Russia b/c of Putin if I'm willing to invest in the U.S. despite it's "foreign policy".

That's a false equivalence. 

Not to turn this into a political debate, so I'll only respond once to check each point and leave it there.


Quote
We invaded Afiganistan because of 9/11.  The US was attacked, they were harboring the terrorists.We attacked Iraq for similar rationale.  We thought they had WMDs, we were worried that they would help perpetuate another 9/11 on the US.  We were wrong on all those fronts, however we have withdrawn most of our troops and allowed self autonomy. While maybe Bush wanted the oil, you basically can't deny that to some extent he wanted to make the world a safer place.

The stated reason for war in Iraq: "To remove a regime that developed and used weapons of mass destruction, that harbored and supported terrorists, committed outrageous human rights abuses, and defied the just demands of the United Nations and the world"

It has since been shown the "evidence" of WMDs was flimsy - supported by the fact that we never found them despite having troops on the ground for years.

Did Iraq harbor and support terrorists? Probably. So have many allies of the U.S. in the middle east (Saudi Arabia for instance). What makes Iraq any different?

As far as human rights abuses, it's estimated that there were 155,923 – 174,355 CIVILIAN casualties from the Iraq conflict. Obvioulsy, this doesn't include deaths of soldiers on either side. It also doesn't include the figures from the power vacuum we left in our wake that has led to strengthening influence of groups like ISIS are a direct result from the destabilization of the area.

Was Saddam bad? Absolutely. Was it worth have 175k+ civilian casualties, hundreds of billions of dollars in wasted resources in an endless war, and destabilizing the entire region to get him out of office? I would probably argue that it was not. Is the world safer? I think the evidence has suggested otherwise.

Quote
Conversely Russia attacked Crimea because they wanted to increase there sphere of influence and threaten a country moving closer to the West and expand territory.  I concede that the US has done similar things in the past (Vietnam War mainly), but Russia is Machivillian to a degree the US is not.  When we engaged in these wars we ultimately allowed some sort of self autonomy when we left whether we failed or succeeded (Korea) and didn't attempt to colonize these areas.


Russia attacked Crimea to secure an important military asset - Russia's only warm-water naval base. It invaded Ukraine in response to U.S. representatives meddling in the Ukranian election in an attempt to tip the scales in favor of a pro-NATO candidate - likely in a bid to further support the construction of the . The pro-NATO candidate won and the likelihood of a NATO/U.S. controlled missile "defense" system and NATO deployments being installed in a neighboring country was a clear and present danger to Russia. So they did what they could - invaded Ukraine.

It does not appear to me that Putin is acting out some colonial wet dream. It seems to me he is responding to provocation. How would we feel if China and/or Russia started deploying armed soldiers and missiles and defense systems in Canada/Mexico? Something like this happened once - The Cuban Missile crisis. How come we have an entire section in history dedicated to Russia stockpiling missiles in Cuba, and the war that almost erupted because of it, but have no appreciation for the U.S. doing something similar in Ukraine and pretend its simply because Russia is evil that they invaded...

Quote
The US does practice some realpolitik, but also has a reputation of supporting democracies like during the Arab Spring etc.  Russia is neither a democracy and consistently (unlike the US which only sometimes) supports dictators. The US is neutral to supporting pro-democratic rebels in Syria, Putin supports Assad and his use of chemical weapons.


The U.S. supports whatever forms of government that best suits it at the time. For instance, we are fine with the government in Saudi Arabia at the moment. I'd almost argue the main reason we prefer democracies in other countries is because it makes it easier to influence the ensuing elections to our needs - but maybe that's just me being overly cynical.

As for chemical weapons, it's hard for me to say whether or not I believe Assad or the rebels set them off. Keep in mind that several of the rebel groups we've armed, trained, and fought alongside in Syria are sympathetic to ISIS and are the same people/groups we're fighting and killing in other countries like Iraq. Both the rebels and Assad have the capacity to harm civilians for gain, but only one of them stood to gain from the U.S. involvement following the chemical attacks -- the rebels. Who actually used the weapons? I can't say, but I don't think its as simple as blaming Assad because he's a terrible person or because that's what the U.S. government told us.

Quote
Putin also basically controls the entire country.  He assassinates people on foreign soil and at home who are a threat to him. The US doesn't do that.

The U.S. DOES do that. We've assassinated and removed WORLD LEADERS who were a threat to us - see the war in Iraq discussion above. We've even gone so far to assassinate U.S. citizens suspected of terrorist ties without a trial - in direct conflict with the constitution the President is sworn to uphold. Maybe it's not as bad as arresting and killing domestic political opponents yet, but we are not innocent of fighting wars over the a person we don't like sitting in a seat of power or killing U.S. citizens that were deemed to be a potential threats.

Quote
I think the last assassination I have heard the US perform is Osama Bin Ladin and there is no way that is not justified.  Perhaps you can call drone strikes assassinations, but these are typically done in war zones.  Maybe the US assassinates people privately, but Putin certainly does more as we hear about public assassination attempts at least once per year.  Additionally journalists and opposition party protesters have been jailed and killed for no legal reason. 


I addressed the assassinations above, but keep in mind that we invaded a sovereign nations airspace to do it. Not a big deal? Let's see if we'd allow Pakistan to deploy military helicopters filled with elite soldiers in the U.S. under the cover of night or if we'd feel that was an act of war.

As for journalists, they are not currently be actively killed by the U.S. gov't, but we do have a President who has labeled the media the "enemy" and has much to say about the "fake news."

Quote
The idea that the US and Russia are equally culpable is a false equivalence.


They don't have to be the equally culpable to be similar enough to draw comparison. If people have moral reasons for not investing in Russia, I'm surprised they're able to overlook them to invest in the U.S. who similarly meddles in global elections, invades sovereign countries, supports evil dictators, and assassinates political threats.

We may not be equally as bad, but we do a lot of the same terrible things that people cite as reasons for hating Russia while holding us up to be the good guys. 

Quote
Whether you agree with it or not, the US spends lots of money on the military and nuclear umbrella so that we can defend our allies from Europe to Japan.  If you consider that being taking advantage of, you basically are conceding that we are helping our allies at our own expense. 

I'll also concede it gives us a huge military advantage over most, if not all, other nations and may not be done for altruistic means. What about the leverage the militaristic advantage gives us?

Quote
One big reason there has not been a global war since the 1990s is because of our enormous military which we use to discourage extremely aggressive and predatory action (even if sometimes it still happens and we still practice it).  Basically yeah sometimes we are Machiavellian in trying to get what we want in foreign policy, but we also spend a lot of money and effort doing good in the world which is more than you can say for Russia.

I'd actually argue that globalization is likely the reason we've not had a global war. Historically, people don't fight with major trading partners. Globalization has allowed for countries to have unprecedented economic impact on each other which, IMO, is more likely to prevent wars.

Anyways, I'm happy that people will overlook their morals to invest in the U.S. instead of Russia. This faux moralism is what is allowing me to profit from the opportunity in relative values between the two.


I think the bigger thing is simply that in many countries you have laws and/or various systems of checks and balances that protect shareholder rights. In countries, and with companies where there isn't confidence in the system, what is your recourse as a shareholder? Good luck with a poor corporate governance campaign, proxy fight, court case in Russia...

I'll agree with this to some extent. Russia will never be able to get the multiples other European nations get until it cleans up it's governance, but corporate governance in the U.S. is far from perfect. See the FNMA thread in General Discussion for a refresher in the U.S. being able to steal tens of billions with impunity while courts simply say "yes, the gov't can do what it wants". Hardly the "checks and balances" that "protect shareholders rights" that people seem to believe exist here.
Title: Re: Why are Russian stocks so cheap?
Post by: Jurgis on July 06, 2018, 01:00:54 PM
It's not surprising that for some people dollar signs is the only moral value and they can rationalize investment in anything however corrupt and despotic it is.

Also not gonna be very surprising if Putin screws them and then they gonna expect to get their money back through lawsuits and sanctions of the countries which they accused to be on par with Putin's Russia.
Title: Re: Why are Russian stocks so cheap?
Post by: Gregmal on July 06, 2018, 02:02:25 PM
Corporate governance is responsible for protecting the interests of shareholders. When that fails the courts are there to do so. In some countries, not only does an investor not have the assurances of either, they have the expectation of neither. This makes it a "no go" zone, for me at least. Similar thing as walking into a US investment with concentrated management ownership or dual class structure. You better be familiar with the terrain otherwise you are in for a rude awakening.
Title: Re: Why are Russian stocks so cheap?
Post by: John Hjorth on July 08, 2018, 12:21:17 PM
Greg, Jurgis & cameronfen,

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.
Title: Re: Why are Russian stocks so cheap?
Post by: cameronfen on July 08, 2018, 05:55:17 PM
Greg, Jurgis & cameronfen,

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.

Yeah I have to some extent but don't read Russian.  I would probably buy mail.ru in Russia because even though its sort of a corporate governance nightmare, it's such a good business and has some sort of stabilizing European influence compared to many of the other big Russian firms as well and so I think it will do well.  But I can't by mail.ru so yeah. 
Title: Re: Why are Russian stocks so cheap?
Post by: wachtwoord on July 08, 2018, 06:14:09 PM
It's not surprising that for some people dollar signs is the only moral value and they can rationalize investment in anything however corrupt and despotic it is.

Also not gonna be very surprising if Putin screws them and then they gonna expect to get their money back through lawsuits and sanctions of the countries which they accused to be on par with Putin's Russia.

A cheap, naive and childish response to Twocitiescapital's well thought out and logically consistent writing. He does not deserve the thinly veiled ad hominem.

Thanks Twocitiescapital, I wish the western news channels were able to report with anything close to this level of impartiality.
Title: Re: Why are Russian stocks so cheap?
Post by: rb on July 08, 2018, 07:24:34 PM
I'm basically with Gregmal here. I don't invest in Russia not because I don't like Putin (and I really don't like Putin) but because I don't know that I'm gonna get my money back. It's not just the political stuff. I also have zero faith in managements also. So Russia is an absolute no go for me.

Now I'm sure that there are some (a few?) good honest companies in Russia and someone who really dedicates himself to it will find some gems. But from my point of view life is short and I can think of much better ways to spend it than to find the few honest companies in Russia. There are a shitload of other public companies in the world to choose from so it's not like I'm constricted.
Title: Re: Why are Russian stocks so cheap?
Post by: John Hjorth on July 09, 2018, 05:28:10 AM
Based on the post by TwoCitiesCapital, last part, I did go back and reread the Lukoil topic here on CoBF, and I found a post by Ericopoly, similar to what TwoCitiesCapital wrote in the last part of his post:

I meant that the Kleptocracy discount is priced into Fannie/Freddie.  Hinges on the success of the lawsuits in a Government court.  We have the government debating permanent seizure of common stock property right here in the USA!

So my comment is that the Democrats give you the best of Putin -- they provide you with the opportunity to speculate on the seizure of your common stock without supporting Putin's regime.

Lukoil is priced where it is for those two reasons (the other reason being the oil crash).  So my joke is that if you pair up a US oil stock with a FNMA common stock, you have a LUKOY.  You have depressed oil trade paired with nationalization discount.  And underneath, you have a cash flow monster in Fannie Mae.

To me, really entertaining [ : - D ], and also demonstrates how important it is to try to stay openminded and sceptical about what's going on in each of our own local spheres.

Thank you to all for input so far. There is a lot to think about and to study.
Title: Re: Why are Russian stocks so cheap?
Post by: Gregmal on July 09, 2018, 07:27:43 AM
Greg, Jurgis & cameronfen,

Have you dived into the information on the websites of any of those Russian stocks recently? I sure understand your position [by principle] regard "lack of respect to capital" with regard to Russia, ref. the phrasing used by i.e. Mr. Flatt, Brookfield Asset Management.

I've looked at a few but admittedly spend less and less time there. Like rb said, there's just too many other opportunities out there and it just doesn't make a while lot of sense to me to spend time somewhere that has an incredibly high hurdle. I've liked Yandex, and looked at OGZPY before, but at the end of the day I try to be impartial to names and businesses I like and instead break things down to a number. Total expected return. And if I can find the same number elsewhere, with less risk or headache, that's were I go.

FWIW I remember Jim Grant pitching OGZPY several years ago at Sohn or one of those conferences. The thesis was that oil was bottoming and it traded at 4x earnings. Well the thesis was right and you'd think three years later with the massive oil recovery, not to mention when something is trading at 4x earnings you'd think after three years of earnings it would be at least 50% higher, nevertheless its substantially down and in the toilet. I have not followed super closely so if there was a large capital return I stand corrected but as of now the shares are at $4.50. It was at $7 when he pitched it. Numbers just don't add up and that's why it's just too much hassle to do Russia right now. Even the good ideas can be a disaster. Instead I bought BP at 33 without even thinking and have had an effortless return.
Title: Re: Why are Russian stocks so cheap?
Post by: John Hjorth on July 09, 2018, 12:19:58 PM
Post by Scott - to me, absolutely brilliant post by Scott, thank you! - in the "Berkshire - cheap?" topic [my emphasis & underlining here]:

I don't get the bad reaction to alwaysdrawing. I agree with a lot of the points brought up, and think people are being too harsh. I don't see anything offensive about that contra view of Berkshire, part of which is similar to what I've expressed in the past. Berkshire is a great company but I'm not sure it's a great investment anymore, either, and sold my shares after the tax reform run-up.

I might buy them back at some point because a lot of its businesses are "old reliable" and there is a place for that in a portfolio, but for me, doubtful to be a "core holding" on account of I like stuff that's a bit higher octane than Berkshire but with much better growth profiles. I see Berkshire as an occasional "role player" for my "team" of stocks, but not something I would build my franchise around. I could see it playing a bigger role for others, though, depending on their risk tolerance and what they're trying to do.

One thing that I don't think a lot of investors appreciate is what sort of role a stock will play in their portfolios. Are its traits complementary to the stocks you already have or does adding it weaken the portfolio even if the stock itself is seemingly underpriced. It's something I have been thinking about more lately. I own Markel for similar reasons, it adds value for me because it's not another Google or Amazon or Facebook.


Edit:

Please try to invert it with regard to outliers. Please try intellectually to apply it, relative to your own actual personal investment style.
Title: Re: Why are Russian stocks so cheap?
Post by: Lance on July 17, 2018, 08:17:07 PM
I'm bumping this topic up, in case there is just some traction to the SBRCY topic in the investment ideas forum going forward. [Which there right now not seems to be.]

Especially for Lance [, if you read this]: Are you still invested in this space?

Hi John -no, I sold SBRCY at a slight gain well before the big run up.  The only Russian stocks I hold now are Gazprom and MBT - not that I necessarily like either of them here, but am content collecting the dividends until/if they run up.

Thanks
Lance