'Peoples IPOs' bad investment for Russians

Washington Post:

Anatoly Sisoyev always considered himself a patriot. As a child, he lost his father to an accident in the Soviet space program. As an adult, he served 30 years in the military, retiring at the rank of major. His son followed him into the army and was killed in Chechnya at the age of 18.

Through it all, he said, his faith in the Russian government never waned.

So when he heard radio ads two years ago encouraging citizens to invest in the initial public offerings of state-owned companies, Sisoyev lined up to buy shares, first in the oil-and-gas giant Rosneft and a year later in the nation's second-largest bank, VTB.

Sisoyev had suffered in Russia's rocky transition to capitalism, but the "people's IPOs," as they were billed by the Kremlin, seemed different. Then-President Vladimir Putin endorsed the stock offerings, presenting them as a chance for ordinary Russians -- and not just the wealthy -- to own a piece of the booming economy.

Now, as Russia confronts its worst economic crisis in a decade, the value of Sisoyev's shares has plummeted, wiping out most of his life savings. At 65, he is working as a part-time security guard because food prices are climbing faster than his meager pension. In a recent interview, he buried his face in his hands and fought back tears as he explained how he is trying to treat his sick wife by reading old medical textbooks because he can't afford a good doctor.

"I believed in the state, especially under Putin, so I bought shares," said Sisoyev, a soft-spoken man with white hair and a soldier's posture. "Now I don't believe in anything."

Swayed by years of steady growth -- and by an aggressive, state-funded marketing campaign -- hundreds of thousands of Russians ventured into the country's young stock markets to buy shares in the "people's IPOs." Now these first-time investors, many of them elderly pensioners like Sisoyev, are among those suffering the most as Russia's economic problems enter into a more painful phase.

...

This shows the importance of having a balanced portfolio and making investments that are prudent for the circumstances of each individual. IPOs are generally not appropriate investments for most retirees who need income producing investments, rather than speculation on future growth. In the US, Putin could have been charged with violating the securities laws for advising people to buy inappropriate investments.