Of Russia and Black Swans

By now you know quite a bit about what is happening between Georgia and Russia. You probably also know that the Russian stock market and the currency have both been hit pretty hard and Konstantin Igropulo (number 35) on the Russian Handball team looks pretty worked up about the whole thing as his team went down to Iceland 33-31in the Olympics.

The Market Vectors Russia (RSX) dropped almost 10% this past week. The dollar went up about 3/4 of a ruble, which is a big move, during the same time period.

This will be a great example to learn from. This is a panic caused by what might be a black swan (anyone know if tensions between Georgia and Russia have been an ongoing thing making this conflict inevitable? if so, then no black swan).

This sort of thing has happened countless times before. Some sort of military something or other that catches the market by surprise causing a swift decline followed by the inevitable snapback.

The reason why this is a great example to learn from is the most people are not going to chase heat in Russia. It is not the ideal destination for most volatility tolerances and so, since jumping into something that is not right for you as an investment destination is not smart, you can pay close attention and watch it unfold.

This sort of thing, albeit with different particulars, has happened countless times and the result seems to always be the same; big, fast decline followed by a snapback. While any single episode could be different, different doesn't happen very often. This kind of event is likely to happen with something that is suitable for you, it has before, and even if chasing it with more money is the wrong trade for you, knowing that you have seen this movie before might prevent you from a panic sale.

If so, mission accomplished.

Comments

[jock:]

Roger, you ask:

(anyone know if tensions between Georgia and Russia have been an ongoing thing making this conflict inevitable? if so, then no black swan).

Can't you google, or wiki before writing pearls of wisdom. This is a long-standing conflict, hardly a black swan. Also, all tied up in oil pipeline politics surrounding Caspian oil. Pundits should do their homework !

2008 Aug 11 03:56 PM

[Brahm:]

It is true that we may cry "wolf" too many times, and most others may pay no attention to it. But sometimes it may just turn out to be the single time when the cry may be true in substance. Then the impact may just be too significant in scope and also long lasting. However, most prudent investors, whose portfolios are balanced in terms of risk and spread, can withstand the fall-out should one materialises. So no need to fear too much, if the fundamentals look good.

2008 Aug 11 03:59 PM

[andrewh10:]

Roger I expect you to producte something better than this zero value babble. Take a stance, Russia looks interesting and the valuations are good if Putin doesn't scare every foreign investor away. It all depends whether you believe Commodities are just pulling back getting primed for a huge move up in the following years or if you take the stance that they have peaked. I'm in the first camp.

2008 Aug 11 04:15 PM

[Alex Filonov:]

Unless you are ready to accept huge political risk, never invest in undemocratic countries. Autocracies only look stable, they never are. Russia is a good example, China is another.

2008 Aug 11 04:34 PM

[JasonC:]

There is no property in Russia. Only a marriage of convenience with the state, as long as it wants to let you continue to "own" something.

2008 Aug 11 05:02 PM

[David B Ham...:]

As an outsider, I may see things differently. The idea that there is any chance is making money as the world goes to WWIII is relative. In past wars much money was made in the runup to hostilities. The runup has been finished. In the past money again has been made after the war in rebuilding efforts. But at the beginning of a total world wide ecconomic collaspe and world war I see only a great risk of loseing money. Later if you survive, and have any money left, maybe you could make a great amount of money. Personally, I can only do what I think best. I have sold everything I own and plan to move to a remote area of the globe to ride out the cataclysm. [e-mail]

2008 Aug 11 05:51 PM

[wb100:]

Seems the latest developments in the Caucasus were entirely predictable. To find out why I recommend the following article: www.financialsense.com...

2008 Aug 11 06:41 PM

[Heisenberg:]

Roger, Did you take your Meds. ?

2008 Aug 11 08:17 PM

[investor88:]

David B's views are noteworthy ie too risky to invest now, he had sold everything. Interestingly he plans to move to some remote area of the globe to ride out the storm, which area? I might move there too having also sold all my stocks.

2008 Aug 11 08:27 PM

[selene:]

"anyone know if tensions between Georgia and Russia have been an ongoing thing making this conflict inevitable?"

Gee, let me think. Well, there was the "freezing" of S. Ossetia and Abkhazia ten years ago, when the USSR was breaking up and these two regions made a bid for independence from both Georgia (of which they had been part) and Russia, but didn't really get it -- they were just allowed to basically run their own show unofficially. Or you could go back to the about 200 years before that of Czarist rule of Georgia, which has always considered itself its own country.

As another poster has said, if you didn't happen to know this off the top of your head, there's always Google and Wikipedia.

2008 Aug 12 10:03 AM

[David B Ham...:]

Thank you investor 88. I will release my information on the safe zones on Earth, the diagrams of the survival chambers, amd the best time to enter for maximun survivability.

As for Tall, I am an american by birth. Russia has been planning this defence of its country since James Bakes III installed the Princton grad. president of Georgia! Anything else you would like explained please contact me a [e-mail].

2008 Aug 12 12:13 PM

[notsosmart:]

why would anyone invest in dictatorships? isnt it hard enough to navigate here among the scammers,crooks,lying ceo's,bod's that dont care,& all other selfserving hand in your pocket people?

2008 Aug 12 11:13 PM