Billionaire from Kazakhstan sets up business in Estonia

Photo: Freedom Finance

• Free brokerage service is self-evident, money is earned from analysis.
• The corona time brought to the stock market the people who follow the trends.
• Cryptocurrency is interesting, but many enthusiasts do not fully understand its essence.

Timur Turlov, Kazakhstan's youngest billionaire, is optimistic about the future despite being forced to sell the fast-growing Russian unit of his stock trading company due to the war in Ukraine. He is establishing a business unit in Estonia to serve Baltic customers and is currently recruiting staff for it.

The CEO and major owner of the US listed company Freedom Holding gave up the citizenship of Russia and St. Kitts because of the war and applied for that of Kazakhstan, where he has been living for ten years.

Since it is not suitable for a US listed company to trade in Russia, the company now focuses on customers in Kazakhstan, Central Asia, the USA and Europe. The company is making final preparations for the opening of its Tallinn office and is recruiting a team to serve the Baltic customers.

The wealth of the father of five reaches 2.6 billion dollars, according to the Forbes Magazine. The 35-year-old man is the youngest among Kazakhstan's billionaires, and he has earned his wealth on his own. It all started during his university days in Moscow, when a friend of his friend traded shares. That was how he got into trading and built a brokerage firm, the specialty of which is to allow investors early access to foreign IPOs.

In 2019, Freedom Holding went to NASDAQ, i.e. became a listed company in the USA, which Turlov is very proud of.

Speaking at a financial forum in Cyprus, Turlov said that Kazakhstan, like the rest of the world, is struggling with rapid inflation. In October, annual inflation reached 18.8 percent. He noted that since the country is independent in oil production and subsidizes fuels, Russia is largely to blame for inflation. Foodstuffs are imported from there, which are more expensive because of the war, and the ruble's appreciation was a double blow.

“The best hedge against inflation would be to buy the Russian ruble, but how do you invest in the currency of a warring country,” he said, considering such money placement unethical.

As an investor, Turlov is optimistic about the future and recommended to begin investing rather than to wait for the stock market to hit the bottom. “People have an enormous balance of free money in banks, brokerage firms and money market funds,” he said. "Even if central banks withdraw money from banking, trillions are on hold. It usually happens that a big stock market rise comes unexpectedly and the bottom is missed anyway. Therefore, I believe that the stock market rise will start faster than anyone dares to hope."

He said that the brokerage service is changing; new brokerage and investment models have turned the lives of securities brokers upside down. He described inexperienced small investors who buy shares in companies they have no interest in as stupid money. Stocks are bought because their value is rising and the social media is writing about it. Everything else is irrelevant. This is usually not enough for investment.

Smart money can do stupid things and does so, but stupid money will definitely lose in the long run, Turlov argued. He gave the example that financial market anarchists did not invest to make a profit, but to punish the hedge funds.

"They are also rapidly investing in crypto-money without understanding not only crypto-finance, but traditional money in general,” he said about the unsustainability of such activities. "They say that the current financial system and banking is theft, but they do not even understand it."

There are also free brokerage services on the market, but the investors do not understand that brokerage firms sell customer activity information to market makers, who pay the brokers for it. There are still no free lunches available. Typically, market makers make profits when retail investors lose.

For Freedom Finance, he considers business growth to be the most important. According to him, we cannot rest on our laurels: now we have good services and enough customers. If you do not grow yourself, your competitors will grow, and you can see that you are a loser after a year. It's not just disruptive business models and start-ups that the stagnant have to fear, but traditional banks as well. It is enough if an old-fashioned bank gives 15 bright characters free reign, and they will be able to innovate the business and serve hundreds of millions of customers.

Freedom Finance tries to differentiate itself from other brokers by offering analysis. "Basically, no one talks about the need for a brokerage service, because it is self-evident,” he said. "We offer the clients analysis and brokerage services."

Turlov used Russia’s war against Ukraine as an example of how everything can change very quickly. Immediately in February, after the full-scale war began, sanctions were imposed on Russia and investors there no longer have access to foreign stocks. Turlov had built a fast -growing brokerage service there, but the fruits of years of effort were effectively destroyed within a year.

In his view, there are many opportunities in the world. When he was young, there were privatizations in which he could not participate. But that did not prevent him from becoming a billionaire.

“At present, opportunities are much greater than during the privatization period,” he noted.

He illustrated the rapid changes with the fact that his business empire owns a bank in Kazakhstan. This has achieved a 62 percent market share for new home loans. They use automatic inquiries in national registers and make a loan decision in a single day. The competitors, on the other hand, process home loan applications from two weeks to a month because they still rely on human interaction and paperwork.

Cryptocurrency enthusiasts do not understand the basics of the economy

The billionaire from Kazakhstan considers it strange that banks have shifted the risk increases to the customers to bear at the request of the regulators; home loan owners are therefore suffering now.

You are the youngest billionaire in Kazakhstan. How did you earn your first million?

I started my business in the middle of the financial crisis of 2008; we put together capital, which was just over $ 40,000.

It is very difficult to recall when the company's equity reached a million dollars. This probably happened in 2009 or 2010.

I did not see million dollars in my account for many years because we reinvested all the profits.

I knew my financial status well because I had to put together documents for the regulators. The strangest thing is that the Ukrainian regulator asked the most questions. They were not only interested in the origin of the money, but required a complete explanation, starting with these $ 40,000.

I earned the first million on customer service fees and investing in the firm’s own account. After the first few years, we decided that we would no longer invest on behalf of the company.

What shares are there in your portfolio?

99 percent of my assets are in Freedom Holdings (US stock exchange symbol FRHC). I believe this is the best investment. I do not have too much free money.

The rest is in start-ups which are testing business models for this company. It would be very strange and unfair towards the employees and investors of my company if I became a big portfolio investor. My wealth is goes along with that of Freedom Holdings.

What are your plans in the Baltic States?

We have a European license. We decided to open a representation in Tallinn because most of our Baltic clients are from Estonia. There are thousands of customers in Estonia. Opening a representation needs a significant number of customers and a good team which we are presently putting together. In the investment world, if you have the right team, things will work out by itself. If the people are wrong kind, no product will help you and the business would not grow.

Will the increase of interest rates kill the inflation?

The monetary policy of central banks is not as tough as they say it should be. The strange thing is that the ordinary people who bought a home take the hardest hit. People bought a home by making a loan with a floating interest rate. Banks apply a fixed interest rate on customers' deposits and current account residues, but lend at a floating interest rate. For example, if the European Central Bank were to raise the basic interest rate to four percent, the interest payments of the home loan would double. This is not acceptable for all borrowers. A very ugly business.

The regulators insisted that the banks would not take the interest rate risk, and they shifted it to the customer. What effective regulators and banks and ineffective customers! Unfortunately, this behavior limits the ability of the central bank to raise the interest rate.

Inflation is not bad for companies as turnover is increasing, although everything is becoming more expensive. It is useful for people to buy something for their money because money loses its value. The worst thing to do is to keep your money and do nothing with it.

Who are smart and who are stupid investors?

A smart investor understands what he is buying for money. A stupid investor buys something everyone buys, for example, because the share symbol is a nice combination of letters or numbers or because the stock has gone up steeply.

During the corona pandemic, a lot of new money came on the market. It was not investing – rather it was speculation or gambling. These people are not investors. Investors want to get richer over time. But these characters were not interested in what and what they were buying and what is the fair value of the stock they buy. This makes it difficult to call yourself a smart investor.

The smart thing is to think that I am not the smartest investor. After all, it may seem that everyone makes a mistake and I do differently. Everybody buys Tesla – I sell it short. Much money has been lost this way. Do not think you are smarter than the others, otherwise you can end up doing something stupid. Nobody knows the future.

A smart investor understands that the price and value of the property are different things. The price fluctuates more often than the value.

Do cryptocurrencies have a future?

Cryptocurrency does have a future, but I have no clear vision of what its future will be. I am not extremely pessimistic. Cryptocurrency cannot be a solution for avoiding regulation. This arbitration option compared to other assets will disappear over time. The banks are regulated and it can be assumed that the same regulation will be applied to cryptocurrency as well.

The idea of cryptocurrency that a fixed money supply creates some value is very strange. In Europe, it was realized that this was the wrong way. Problems are solved through inflation; changing supply of money makes the economy more cyclical but has led to lasting economic growth.

The value of money depends on the economy that this money is serving. To my knowledge, cryptocurrency represents a very small economy. Crypto-tokens are like secret numbered accounts in the Swiss banks 20 years ago. These are now forbidden.

I spent a lot of time studying cryptocurrency and came to the conclusion that many characters calling themselves crypto-enthusiasts do have no in-depth understanding of the economy, modern money or banking, securities regulation or why these things work the way they do.

It is cool to be a crypto-anarchist, but I am not so young as to believe that crypto is our future. (Laughs.) I agree with Bill Gates, who says that cryptocurrency is the slowest and most expensive payment system in history. Of course, the system can be made more efficient. In my opinion, cryptocurrency is overestimated during the transition period.