BIO: Harvey Sawikin is the co-founder and co-manager of Firebird. Launched in early 1994, Firebird’s funds were the first dedicated to the stock markets of Russia and the former Soviet Union.

STORY: Harvey invested twice in a bank and a vodka company without due diligence. Instead, he believed that other companies who had invested in those investments had done the job of verifying their viability. Harvey lost huge amounts in both investments.

LEARNING: You’ll fail if you rely on someone else’s due diligence and work. The most dangerous time to invest is when it’s the easiest to invest.

 

“Relying on someone else’s due diligence is a mistake because you never know what’s going on or when stuff starts to go wrong.”Harvey Sawikin

 

Guest profile

Harvey Sawikin is the co-founder and co-manager of Firebird. Launched starting in early 1994, Firebird’s funds were the first dedicated to the stock markets of Russia and the former Soviet Union. Harvey also co-founded the Amber funds, which do private equity in the Baltic States. Before Firebird, he was an M&A lawyer at Wachtell Lipton after attending Harvard Law School and clerking for a Federal judge. Harvey’s novel, about a young lawyer who becomes an inside trader, was published by Simon & Schuster in 1995. He lives in Manhattan with his wife of 32 years and a neurotic 15-year-old cockapoo.

Worst investment ever

One of the largest banks in Kazakhstan, BTA Bank, approached Harvey’s company with an investment proposal. Another fund in the region had taken a position in it. The bank was supposedly very close with management and had excellent insight into how the company would build. The company looked cheap, with a reasonable price to book, and the economy was performing well. So Harvey invested in the bank.

It turns out the bank’s loan book was crooked, and there was a lot of self-dealing. The guy who was the main power behind the bank was arrested for misappropriating millions of dollars from the bank through bad loans. The bank was put into bankruptcy and was taken over by another bank. The shareholders were almost wiped out. Harvey’s company had invested $20 million and got under a million back.

In another incident, Harvey was very interested in getting involved in Ukraine. When a vodka company was brought to their attention, they became keen on investing in it, especially since a famous hedge fund in New York had bought a direct position. The fund said they had maxed out how much they could take and were willing to sell Harvey part of their stake.

Harvey’s company made its investment, and within two or three weeks, the vodka company released gross earnings. Its financial results were 40% below where they were supposed to be.

Harvey believed they had been duped by the hedge fund and wound up litigating against them. He eventually dropped the case due to the ruinous litigation costs in England and where the loser pays. He surrendered to losing that investment.

Lessons learned

• You’ll fail if you rely on someone else’s due diligence and work.
• Be careful when investing during a bubble because it becomes invisible to you when you’re inside it.

Andrew’s takeaways

• Do your own due diligence.
• Don’t overestimate the knowledge, skills, and persistence of other investors.
• The most dangerous time to invest is when it is the easiest to invest.

Harvey’s recommendations

Harvey recommends Twitter as a source of real-time information as long as you follow the right people.

No.1 goal for the next 12 months

Harvey’s number one goal for the next 12 months is to hang onto his Russian positions and make sure his investors recover their money and continue to find value in the rest of Eastern Europe when the war is over.

Parting words

 

“If you don’t obsess over your mistakes, you’re not a real investor.”Harvey Sawikin

 

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