Investment opportunity for the risk neutral

I didn't downvote, but for what it's worth I think this may be a bit niche and of tangential relevance to be a top level post on the EA Forum. The 'EA Hangout' or investment Facebook groups would be better fits - see http://wiki.effectivealtruismhub.com/index.php?title=Discussion_groups . People would likely be interested there. I hope this is helpful feedback!

Your use of the phrase "fair market value" is a large red flag.

I've been speculating in stocks for 35 years. One of the hardest lessons I needed to learn was to not believe that last year's prices were fairer than today's prices.

Betting on mean reversion occasionally makes sense, but I've learned to only do it after careful analysis of the fundamentals (earnings, book value, etc).

TL;DR: Please please please don't do this. There are not many better ways to burn money.

There are three premises here:

1. Russia is undervalued.
2. Leverage multiplies your returns powerfully if you are risk neutral.
3. RUSL is the best way to get this leveraged exposure to Russia

I'm going to ignore 1 and focus on 2/3. RUSL and RUSS (the sister ticker; RUSS is x3 short) get their exposure by holding shares of RSX.

What would have happened historically if RSX had been overvalued and you called it right, and bought RUSS (this sister ticker to RUSL; it's triple leveraged short). What about if RSX was undervalued, and bought RUSL? If you look at raw prices, here's the last four years:

2012: RSX 27.62 -> 30.68, RUSS 34.4 -> 13.77, RUSL 34.27 -> 34.4

2013: RSX 30.68 -> 27.93, RUSS 13.77 -> 12.25, RUSL 39.5 -> 28.05

2014: RSX 27.93 -> 14.79, RUSS 12.25 -> 27.41, RUSL 28.05 -> 17

2015: RSX 14.79 -> 14.23, RUSS 27.41 -> 40.59, RUSL 17 -> 10.23

This doesn't necessarily look awful, but misses a critical factor; both RUSS and RUSL have had significant reverse splits* in the past few years. RUSS had a 1 for 4 split in 2015; that year's final prices should be thought of as 40.59 / 4 = 10.1475. RUSL had a 1 for 6 split in 2014; that year's final price should be thought of as roughly 17 / 6 = 2.8333.

It gets worse. RUSS has paid no dividends for the last few years, and RUSL paid one tiny dividend in 2014. Generally leveraged ETFs do not pay dividends. RSX, meanwhile, has paid dividends of 0.519, 0.638, 0.742 and 0.729 in 2015/14/13/12 respectively. A glance at RSX's price tells you these are not small numbers. Accounting for that the following becomes apparent:

In 2012 RSX went up. If you held it you made a tidy 13.7% return (accounting for dividends). Congratulations on your successful prediction! Unless you used that prediction to buy RUSL of course, in which case you made less than 1%.

In 2013 RSX went down. If you held it you lost 6.5%. If you saw that coming and invested in RUSS, you lost 11%.

In 2014 RSX fell massively. If you held it you lost nearly 45%. If you bought RUSS in anticipation, you do actually make money this time; 124%.

In 2015 RSX moved by less than 0.5% in either direction; down 0.28%. RUSS, however, lost 63%, more than wiping out the gains in the previous year.

Obviously if you guess wrong you do even worse. Reality says that this works really badly. If your theory and reality disagree, it's generally not reality that's wrong; this goes double if you aren't an expert in the industry.

*A reverse split of, e.g. 1 for 4 means that if you owned 400 shares of RUSL the day before the split, you own 100 shares the day after. In the US this is normally used to get prices back into the 10 - 100 range that US exchanges generally prefer their stocks to trade in.

It looks like RUSL rebalances daily, which could end up eating a lot of your returns. I don't know much about this but I'd expect buying on margin with Interactive Brokers to be a better bet.

(See Brian Tomasik's analysis of leveraged investing.)

However, with three times leverage, even taking into account that you need to pay interest on the implicit loan, one would expect more like 50 times the money.

How did you come up with this figure? If a Russia ETF is currently at $10 and you expect it to increase to $40 within seven years, a 3x leveraged investment would increase to $120 (ignoring overhead costs and volatility drag), right? That's a 12x increase, not 50x.

You note it, but I don't think your calculations truly take into account the counterparty / political risk of being unable to get liquid from Russian stocks. That risk factor is built into the current low price of Russian stocks - why do you think the market is wrong? Because of the longer time horizon of young investors?

Where has the Russian stock market declined? The MICEX index look pretty flat.

I think much of the decline is due to falling oil prices. I don't necessarily expect them to mean revert much.