Harvey Sawikin, the co-founder of Firebird Management, a pioneering hedge fund dedicated to investing in the nascent markets of the former Soviet Union and Eastern Europe, has cultivated a wealth of knowledge from his decades of experience on the frontiers of capitalism. His insights, often shared through interviews and his Substack publication, "The Falling Knife," offer a masterclass in navigating uncertainty, conducting rigorous due diligence, and understanding the psychology of markets.

On Due Diligence and Doing the Work

  1. "You'll fail if you rely on someone else's due diligence and work." [1] This core tenet stems from a painful lesson where Sawikin lost a significant investment in a Kazakh bank by trusting another fund's research. [1]
  2. "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." [1]
  3. "Do your own due diligence." [1] A simple yet powerful mantra repeated after learning the hard way.
  4. "Don't overestimate the knowledge, skills, and persistence of other investors." [1] Just because another prominent investor is in a deal doesn't mean they've done the necessary homework.
  5. When investing in a Russian potash producer, the management tried to dissuade him from buying, a tactic he dubbed the "Scooby Doo," where they try to scare you away while buying for themselves. This highlighted the importance of independent conviction.
  6. The most dangerous time to invest is when it's the easiest to invest. [1] Easy money often masks underlying risks that are overlooked in a bull market. [1]
  7. Before co-founding Firebird, a partner at his former law firm gave him a copy of The Intelligent Investor, calling it the essential read for any serious investor.
  8. His initial foray into investing involved sifting through large Value Line books at Columbia Business School, highlighting the hands-on research required before the internet era.

On Market Psychology and Contrarian Thinking

  1. "Don't Catch a Falling Knife — 80% true." [2] Sawikin cautions that a crashing stock can fall much further than contrarians expect. [2]
  2. "It's better to wait for the sellers to capitulate and see the stock bounce along the bottom for a while, and then start buying." [2]
  3. "I like to quote Bob Dylan: 'When you think you've lost everything/You find out you can always lose a little more.'" [2] This serves as a stark reminder of the potential downside in seemingly cheap assets. [2]
  4. "Be careful when investing during a bubble because it becomes invisible to you when you're inside it." [1]
  5. "Bulls Make Money, Bears Make Money, Pigs Get Slaughtered — This suggests taking profits and not overstaying your welcome. While this may be good advice for short-term trades, for most investors I urge holding on to your best stocks." [2] He challenges this classic adage, arguing for long-term holding of quality assets. [2]
  6. Regarding bears, he notes, "in my experience it is the unusual one who does — as someone once said, you don't come across a lot of billionaire pessimists." [2]
  7. He recalls a former law firm partner dismissing the "pigs get slaughtered" saying with, "My best clients are professional pigs." [2]
  8. "Don't Trade a Mistake – Meaning that when you regret a recent investment decision, reverse it immediately. I rate this saying 75% accurate." [2] He advises listening to your gut when a trade feels wrong. [2]
  9. "The delta between perception and reality is greater in frontier markets than it is in more developed emerging markets." This inefficiency is where skilled investors can find an edge.
  10. "I've found that with all fund managers, both in EM and in the developed markets, people are always fighting the last war." This leads to a focus on recent events (like oil prices or currency movements) while potentially missing the next big shift.

On Emerging and Frontier Markets

  1. "Emerging markets are often a blind spot for investors—finding them requires assessing liquidity risk and geopolitical climate." [3][4]
  2. "Dollar strength and weakness is the macro factor that has the biggest impact on emerging markets." [3][4]
  3. When evaluating an emerging market, the first thing to look for is a government that is not hostile to foreign investors.
  4. The second crucial factor is a competent central banker or finance minister who can bring inflation under control.
  5. The third requirement is a functioning capital market, even if it only has a few investable stocks.
  6. "If you believe in the economy of a country, buying the bank is a leveraged play on the growth of that economy." However, he cautions that this works both ways, with banks taking the biggest hits in downturns.
  7. "Each country has a different sector that's attractive. It's a comparative advantage question. In Mongolia, it's coal; they are the Saudi Arabia of coal."
  8. When he first visited Russia in January 1994, he saw that despite the hardships, "it was a real country," which gave him the conviction to invest when others were fearful.
  9. "In an emerging market, very often, that first leg down is just the beginning of a total meltdown because of some major change that's happened at the macro level." This is a key pitfall for value investors in these markets.
  10. "Finding [opportunities in emerging markets] requires risk, hard work, discipline, and a dose of luck and timing." [5]
  11. The value of travel in investing is immense, especially in emerging markets, to get a real feel for the country and its potential. [3]

On Portfolio Management and Strategy

  1. "There is only one solution to that problem [of unexpected blow-ups], which is diversification." He emphasizes that even seemingly unassailable companies can fail suddenly.
  2. "When you're over 10% in a single stock, alarm bells should start ringing."
  3. A typical position size for a stock with great value, liquidity, and management is between 4% and 6%. If any of those elements are lacking, the position size should be smaller.
  4. He is not a big fan of global emerging markets equity funds, stating, "I know how hard it is to feel that we keep an edge in just the 12 markets that we're currently active in, much less having to follow what's going on in Indonesia and Egypt and everywhere else."
  5. "Buy at a Price, Sell at Market." [6] He rates this 70% true on the buy-side and 90% true on the sell-side. [6]
  6. On selling: "If you've cleared that emotional hurdle and decided it must be sold, you're probably right, and you should do it quickly at market." [6] He describes the "torture" of using limit orders on a stock that keeps falling. [6]
  7. A trader he knew referred to stocks as "puppies" or "pieces of crap" to avoid emotional attachment. [6]
  8. "Sell when you can, not when you have to." [6] This mantra emphasizes staying ahead of potential cash needs. [6]
  9. "Focus on Investment Process, Not Results." [6] While common in the value community, he finds this irritating, especially when managing outside money, as investors may not wait for a long-term process to bear fruit. [6]
  10. He compares a disciplined investment process to a professional sports bettor who knows their data-driven system will win over time, despite short-term bad beats. [6]
  11. He draws lessons from the art world, noting that in major collections, tremendous value often becomes concentrated in a very small number of pieces, a phenomenon known as "positive skewness." [7]
  12. This observation supports the strategy of holding on to your biggest winners rather than selling them prematurely. [2][7]
  13. "It is possible to 'trade around' a position...This requires the investor to master their emotions." However, he warns that in a bull market, you may never get a chance to buy back in.
  14. "If you don't obsess over your mistakes, you're not a real investor." [1]

On Career and Life

  1. In his early 30s, he faced a choice between a stable legal career and the nascent, high-risk venture of investing in post-Soviet Russia.
  2. He sought the advice of a career counselor, who turned out to be a psychotherapist, to navigate this life-altering decision.
  3. The experience taught him that "no matter how well we think we know ourselves, sometimes we need a trained observer to find out what we're really up to beneath the surface."
  4. He recommends Twitter as a source of real-time information, provided you follow the right people. [1]
  5. His Substack, "The Falling Knife," covers a range of topics including investing, marriage, family, and culture. [5]
  6. He is also a novelist, having penned Rick Green, Esquire, a story about a young lawyer who becomes an inside trader. [8]
  7. On fundraising: If institutions that previously snubbed you come asking to invest, "That will be a sign that your asset class is topping out and you should be afraid." The loyal, early investors are the ones "worth their weight in gold."

Learn more:

  1. Harvey Sawikin – Do Your Own Homework - Apple Podcasts
  2. Investing Truisms: Are They True? - by Harvey Sawikin - The Falling Knife
  3. What Does It Take to Invest in Russia? ( w/ Harvey Sawikin ) - Real Vision - Poddtoppen
  4. What Does It Take to Invest in Russia? ( w/ Harvey Sawikin ) - Real Vision
  5. Harvey Sawikin - Emerging Mark…–Invest Like the Best with Patrick O'Shaughnessy - Apple Podcasts
  6. Yet More Investing Truisms - by Harvey Sawikin - The Falling Knife
  7. Value Investing: Lessons from Major Art Collections - The Falling Knife
  8. The Value Perspective with Harvey Sawikin - Podbean