From Russia with Love

by | Jan 1, 2005 | Archives

Yesterday's message gave an urgent sales signal and pointed out the need to be super conservative at this time, as we face a market that holds the potential for enormous risk.

But what is conservative? Not that long ago, a conservative, diversified portfolio could well have included some Enron and Xerox shares for stability, some estocks for growth and a few Japanese bonds for extra safety. That “low risk” portfolio would have lost an enormous portion of its value!

Yet, one of what seemed the riskiest portfolios on earth, oil shares in Russian have performed well. The report from eClub advisor Teddy Christiansen explains why.

“In the last two years portfolios and investments in the Stock-Market have been a nightmare for most of us. Where do we find any potential for investing of a smaller part of the portfolio?

“I found one opportunity in February/March 2000. I was on an investment cruise with the Oxford Club on the GRAND PRINCES. I heard the speech of Joe Passin, an editor of one of the club's publications. He was speaking about Russia and since I had visited Russia the year before with the Oxford Club as well, I found his speech interesting, and the facts that I knew about Russia were identical with the facts from his speech, which is quite unusual.

“I asked him about stocks in LUKOIL, the largest oil company in Russia. He said, that if I wanted to invest in these stock, the best to buy was LUKOIL OIL Co-Spon ADR FED denominated in EURO and quoted on the Frankfurter Exchange. These stocks were a kind of preferred stock. Other Lukoil stocks had the risk that the management issued a lot of stocks to themselves and other staff members.

“So I went back and bought some stocks in March 2000 let us say for $50,000 of these preferred stock to the quotation of 12.00. Remember that in April 2000 the world stock market reached its highest level ever. In spite of this situation my LUKOIL investment went from 12 to 82 end of April this year. In the meantime they had reduced the nominal numbers of stock 2:1, so the real value was now 41 and my $50,000 had grown to more than $160,000 and also had become more than $40,000 dividend in the period between. $50,000 went to $200,000 within two years. At the same time most other stocks went down.

“The future for Russian Oil stocks have a lot of potential. This month president Bush is going to Moscow, and one of the topics to discuss is to increase the export of oil to The States. Russia wants to keep a steady level of oil prices and is not affected by the crises in the Middle East. Also the relationship between USA and Saudi Arabia has suffered. It is said that the USA will help Russia to repair the infrastructure and pipelines. These are in a very bad shape.

“Today Russia is the world's largest oil producer with the largest reserves in the world. Their biggest problem is the internal corruption. President Putin has with some success reduced the corruption and has recovered part of the Russian economy. If he continues his success with reforms, I see a lot of potential in the Russian market. At the present stage the Russian industry stocks are something like 40% undervalued to others stock, and on top of this is the growing potential.

“Now we come to the risk because my experience is based on the past. What will happen if Putin is removed as president and the old guard takes over? The end of Russian democracy ? I compare this risk with the risk we have seen on very solid stocks that had fallen to more then one fifth of its value and might drop even more. The stocks that we had a lot of confidence in gave us such huge losses.

“I do not have fully confidence in the future of Russia, but I hope and I see some potential for a smaller portion of my portfolio. Or else I will make nothing on my stock portfolio. Look at the forecasts it is like the weather forecasts, they are more likely to be wrong than right. What an easy job to have. Today nobody knows if we have had just a recession or we are in just in the early days of a coming recession.

“Gary said in 1996 that the DOW most likely would not reach 7.000 and now it is on its way down from 11.000 the 10.000 or less. Experts say the DOW is down right now, but in the next quarter or the second quarter we are going to see a rising market. When did they say the same thing about Japan?

“If you are an investor who is willing to take some risk, there are several possibilities. Buy a stock like LUKOIL directly or enter some European Mutual Funds investing not only in Russia but also in Poland, Hungary and other potential in countries expecting to enter the EU within the next 4-5 years. I have personally also some good experiences with some of these mutual funds.

“WARNING: Do not buy stock quoted on The Russian Exchange as you have no guarantee that the stocks really exist. Buy only from New York, London or Frankfurt.

“Stocks may be purchased from USD 25,000 and Mutual Funds from USD 10-15,000. If you are thinking of buying, you must agree to most of my comments about Russia. Think about such a huge country with the largest number of high educated individuals, a GDP of the size of Denmark and with a standard of living among the 50 poorest countries in the world. But now they do pay their civil servants and the balance of payment is improving. Russia has just agreed to pay a debt back to Germany they have been arguing about since the early fifties.

“I just wanted to tell you this little success story which encourages me. Please

be aware of the fact that I am also a member of the advisory board of Gary's E-club, so you are free to contact me about anything you think are related to me and my 42 years experience with International Private Banking. If you are interested in a dialogue with me, please note my E-mail

Teddy “

Here is the point that Teddy's memo reminded me that I wish to share. Yesterday's blue chip may be tomorrow's fiasco. Most certainly the big winners of the next decade (and there will be winners even if the market falls) will be shares that most investors and advisors will not expect. You can learn more about how to spot the winners in the links below.

Until next message,

Good global investing, Gary