As I read Oleg Barmin's book "Я помню всех, кто мне когда-то не перезвонил" (I remember everybody who once did not call me back) I saw a lot of parallel to Theodore Dreiser's Financier Frank Cowperwood (Charles Yerkes). Like Cowperwood (who being a teenager bought and re-sold a soap with profit), teeny Barmin bought a frozen fish, smoked it and re-sold with profit. In the age of 21 he built a flourishing car business ... and like Cowperwood was wiped by crisis and was imprisoned (however, only on remand). Like Cowperwood, he rose again (in florist business). Though Barmin had not (yet) built something like London Subway, he is only 35 and who knows, maybe we will see more parallels with Cowperwood...
In spite of such praising summary the post is going to be critical: we will concentrate on what Oleg missed from risk management point of view.
Читая книгу Олега Бармина я невольно проводил параллели с драйзеровским "Финансистом". Как и Каупервуд (Чарлз Йеркс), перепродавший мыло подростком, Бармин будучи еще тинейджером - покупал мороженную рыбу, коптил ее и перепродавал. Как и Каупервуд Бармин рано стал миллионером ... и разорился во время кризиса, и посидел в тюрьме (правда, "всего лишь" в СИЗО)... и после всего этого воспрял! Хотя Бармин и не построил (пока-что) чего-то вроде лондонского метро, ему еще лишь 35 и кто знает, какие параллели еще можно будет провести с Каупервудом-Йерксом... Но довольно похвалы, основной пост будет критическим, мы рассмотрим то, что Олег упустил с точки зрения риск-менеджмента. Дальше все по-английски, ибо кто владеет русским, пусть читает Бармина в оригинале и сам делает выводы.
Oleg worked hard and reached (and then lost) a lot. Both because he is a good entrepreneur and a bad risk manager. Yes, being a bad risk manager was (and probably is) a prerequisite to make business in Russia. A good risk manager, like myself, would decide not to make any business since the risks are too high (so I moved to Germany, a country with an acceptable risk-opportunity ratioб and now try to build letYourMoneyGrow.com). Oleg thought little about risks and concentrated on making business. He succeeded, failed and again succeeded.
In this sense his case is very valuable. Those, who succeed without a failure are often just lucky. Those, who irreversibly failed (a number of assassinated or suicided businessmen in Russia was enormous in 90s) cannot anymore tell us anything. It is called a survivorship bias. Oleg failed almost irreversibly. But could he have prevented or at least mitigated his failure?! Oh, yes!
- First of all he, already having a lot of systematic (i.e. rewarded) risks, also exposed himself to the idiosyncratic (non-rewarded) risks. In particular, he rode a bike more than 100 km/h on North-Russian(!) motorways. Once he fell down and only by a good fortune he stayed alive.
As a former actuary I can affirm that riding a bike is dangerous but may be acceptable (avoiding traffic jams, saving gasoline costs), racing it is a generally bad idea.
- He didn't make sufficient reserves, preferring to put everything in business growth. In finance it is like a portfolio manager who keeps nothing in cash or defensive assets.
- He did not pay attention to the legal issues. Thoroughly written concracts would not have saved him from treachery and financial assaults but they would likely help him to avoid bankruptcy and imprisonment on remand.
- Last but not least, he trusted his business to a "professional" manager (and concrary to Oleg this guy was legally literal, so that Oleg was not able to roll back with his decision).
Though Barmin did recover, it is rather an exception. Remember, a sustained growth (both in business and trading) can be achieved only if you control the drawdown!