When I had dinner last fall with Bill Browder, founder and CEO of Russian markets investment fund Hermitage Capital Management, it was an unusual experience.
That's because Bill didn't touch his food or drink.
No, Bill isn't worried about his weight.
It's just that he doesn't eat food served to him in public places.
That's because for the past decade, Bill has led one of the highest-profile anti-corruption campaigns against the Russian government. (You can see a documentary on Bill's story here.)
Formerly the largest foreign investor in Russia, today Bill lives his life in the crosshairs of Vladimir Putin and the Russian agents bent on destroying his life.
Bill's abundant caution at our dinner wasn't just paranoia.
Since I last saw him, both a former KGB agent and his daughter were poisoned by Russian agents in London.
Investing in Russia in the 1990s made Bill Browder a very wealthy man.
I don't think many foreign investors are likely to repeat Bill's success anytime soon.
But I do think investing in Russia today offers some exceptional opportunities.
My reasoning is simple: Whenever investors absolutely hate a company, sector or asset class, you can often make a lot of money.
And it applies not only to Russia but to every successful investment I've ever made.
As Sir John Templeton famously put it...
People are always asking me where the outlook is good, but that's the wrong question... The right question is "Where is the outlook the most miserable?"
Whether it's due to the annexation of Crimea in 2014....
Interference in the 2016 presidential election...
Or Putin's support for the Syrian regime...
Russia's market is the most hated I've seen in my life.
The most recent sanctions against Russia announced on April 6 took their toll on the Russian stock market.
The RTS Index (Russia's equivalent of the Dow) slumped by 8.3% on that day, and the ruble lost more than 3%.
But here's the good news: This recent collapse of the Russian market offers a rare opportunity.
Russia is now so hated that if it ever turns around, savvy investors are going to make a lot of money.
Most investors, of course, don't invest this way.
Investing in a sexy biotech growth story is easy.
Investing in countries and companies everyone hates is hard.
This goes back to one of the most counterintuitive rules of investing - and one I learned from Bill: "You make more money when things go from truly awful to merely bad than when they go from good to great."
Investors hating Russia is nothing new.
After the market's meltdown in 1998, one investor famously declared, "I'd rather eat nuclear toxic waste than invest in Russian securities."
You too probably think Russia today is "truly awful."
I'm here to tell you that you can make a lot of money in Russia when it becomes "merely bad."
Let me explain...
Between 2014 and 2016, the Russian economy was walloped by a double whammy of tumbling oil prices and Western sanctions.
Then in 2017, a series of interest rate cuts spurred lending and the economy grew.
The World Bank expects Russia's economy to grow by 1.7% this year and 1.8% in 2019.
Ratings agency Standard & Poor's upgraded Russia's debt to investment-grade in February.
Finally, Russia is the second-cheapest market in the world on a long-term cyclically adjusted price-to-earnings (CAPE) basis (Greece is the cheapest).
Trading at a price-to-earnings ratio of about 7.7 and a price-to-book ratio of 0.9, the Russian market trades at half the level of the broader iShares MSCI Emerging Markets (NYSE:EEM) Index.
So yes, investing in Russia should be approached with caution. The U.S. Treasury Department is tightening the noose around the necks of Putin-linked Russian oligarchs where it can.
In fact, many investors will be forced to sell certain Russian assets by May 7 as a result of the latest sanctions.
But once that date passes, I believe investors will pile into the $1.8 billion VanEck Vectors Russia ETF (NYSE:RSX).
Unlike Bill Browder, I wouldn't bet my career on Russian stocks.
But I know that my personal biggest wins have come from my willingness to bet against the market consensus.
Russia may be the most unpopular place in the world to invest...
But it may also turn out to be one of the most profitable.
Good investing,
Nicholas
P.S. If you're interested in the details of Bill Browder's remarkable story, I recommend you read Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice. Bill told me he is in discussions with screenwriters to turn the book into a movie as well.