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An Investing Lesson from Putin’s #1 Enemy – Matt Trogdon – Medium

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Photo by Sheldon Nunes on Unsplash

What can we learn from the man who defied the Russian president?

I just finished reading Red Notice, a memoir from financier and economist Bill Browder. You might have heard Browder’s name, but not because of his investing acumen. He’s better known in the international community as one of the top enemies of Russian president Vladimir Putin’s oppressive regime.

Browder, following the 2009 death of his Russian lawyer, persuaded American politicians like John McCain and Ben Cardin to pass the Magnitsky Act. The act sanctions human rights violators from around the world by freezing their assets and preventing their entry into the United States. Putin has sought to get his (figurative…but maybe also literal) hands on Browder ever since.

Browder’s name came back into the American consciousness last summer when Putin brought it up in a meeting with US President Donald Trump. The Washington Post called the discussion “inappropriate as well as disturbing.” You can read more about it here.

Red Notice is a fascinating read for anyone who enjoys international affairs, geopolitics, and true crime. But there’s also a lot to be learned by investors, as the first half of the book focuses on how Browder built his fortune.

After taking a job with Salomon Brothers in 1991, Browder soon found himself caught in a massive wave of corporate privatization. In Russia, he began researching local companies whose shares were being offered to the local citizenry after the fall of the Soviet Union. He consulted local newspapers, took trips to far-flung outposts to meet with management teams, and compared the company share price offerings with the values he could surmise from corporate ledgers. He soon concluded the shares were comically undervalued.

Here’s Browder relaying a story about the privatization of a Russian shipping company. The emphasis is his:

“I did the math. A hundred trawlers at $20 million each meant that they had $2 billion worth of ships…I was amazed. These people had hired me to advise them on whether they should exercise their right under the Russian privatization program to purchase 51 percent of the fleet for $2.5 million. Two and a half million dollars! For a half stage in over a billion dollars worth of ships!”

Browder soon broke from Salomon to start his own firm: Hermitage Capital. By the end of the decade, he was one of the most successful investors in all of Russia. Here he is on Sidanco, “a big oil company in western Siberia that no one [had] ever heard of”:

“This was a remarkable discovery. Everyone knew that Lukoil was a steal, since it controlled the same amount of oil and gas as British Petroleum but was ten times cheaper. Now here was Sidanco, sitting on a bit less oil than Lukoil, but not much, only it was six times cheaper than Lukoil. In other words, Sidanco was sixty times cheaper than BP!

This was one of the most obvious investment ideas I had ever seen. My fund bought 1.2 percent of the company starting at $4 per share, spending roughly $11 million.

On October 14, 1997, BP announced it was buying 10 percent out of Vladimir Potanin’s 96 percent block of Sidanco for a 600 percent premium to the price we had paid a year earlier. It was a home run.”

Deals like these allowed Hermitage to grow from $25 million to over $1B by 1997. It’s a story that’s reminiscent of Warren Buffett’s work at Berkshire-Hathaway.

So what’s the takeaway for everyday investors?

Reading through Browder’s exploits from an investing standpoint, I can’t help but admire the enormity of his success. But the thing that jumps out to me, even more, is the extent of his on-the-ground research. And therein lies the rub.

How many amateur investors are going to put in anywhere near that much effort researching stocks? I know I’m not. So where does that leave me (and you, if you’re like me) on the path towards building wealth?

It’s possible, of course, that we can make money in the stock market without pouring over company financials or traveling to foreign countries to meet with management teams. It’s never been a better time to be an index fund investor. And someone who invests regularly and patiently into low-cost funds can build a surprising amount of wealth over a long enough time period.

As I wrote last year, “a 25-year-old who saves $300 a month, invests, and generates an 8% return on his or her investments would have over $932,000 by age 65 — all through the power of compound interest.”

But if we choose to pick our own stocks, we should know that we’re competing in the same arena as the Browders of the world. That’s not to say we shouldn’t try…but that it’s something we should take very seriously if we do. And I’m not sure we do.

One of the most popular maxims in investing is to “buy what you know.” And I think that’s what many amateurs do in one way or another. We either buy something we know ourselves or we buy something that we read about or that someone else told us to buy. I don’t think my record is necessarily representative of amateurs in general, but I know that this strategy has had mixed results for me.

I knew I liked burritos, and coffee, and professional networking, and my iPod, and looking up stuff on the internet. And I’ve done well as a shareholder of Chipotle, Starbucks, LinkedIn, Apple, and Google, respectively. But I also knew I like donuts and sports apparel. And I have a friend who loves his Roomba. And yet, I definitely lost money on Krispy Kreme and Under Armour and iRobot.

While I’d love for my investing story to be like Bill Browder’s, I know I’m not going to put in the hundreds (maybe thousands) of hours I’d need to in order to make it so. I doubt many of us are.

I still think the best-case investing evolution for most mom-and-pop investors starts with individual stocks. It’s more fun and interesting to follow specific companies while we’re learning than it is to follow mutual funds, index funds, or ETFs.

But at some point, we amateurs hopefully learn enough about stocks that we start to realize how much more we don’t know and how much more we’d have to keep learning and grinding in order to become next-level stock-pickers. We can then decide whether or not we want to dedicate that required time.

Browder’s story…just like Buffett’s, can help us make that decision with a clearer understanding of the potential commitment involved.

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