Editor’s note: This article was first published in August 2014. Rogers’ views are as reported then: that the future of business is in China, that Myanmar’s small stock market is the long-term bet for the next 20 to 40 years, and that India is a poor place to invest.
They say the devil knows more from being old than from being the devil, and Jim Rogers is by now another legendary old devil of investing: he co-founded the Quantum Fund with another investing legend, George Soros.
From his long career in investing, we have gathered 10 of his brilliant investing lessons from his book Street Smarts: Adventures on the Road and in the Markets, along with some thoughts reported in the financial press, such as Forbes, Bloomberg and Business Insider.
1. Successful investors do nothing most of the time.
Investing is hard work, and analysing the shares you are going to buy is not easy, especially when it is done properly. You have to research the company thoroughly: the market, the timing, the state of the industry, and so on.
But once you have invested in a company after doing your homework, you can spend your time going to the beach, playing golf, reading or whatever you like to do in your free time. If you keep watching the market, you will see opportunities every day, and many of those shifting, apparent opportunities will push you into new investment decisions and even make you second-guess the investments you have already made. This is a mistake many investors make, and it leads them to a very active style of investing when, in reality, passive investing is what pays best.
2. If you want to make a lot of money investing, stay away from diversification.
When brokers recommend diversifying, they do so as a way of protecting yourself, but as Warren Buffett used to say, excessive diversification is a way of protecting yourself against ignorance.
If you buy 10 different stocks, some will be very good, others perhaps bad and some mediocre. Diversification will keep you from going bankrupt, but you will not make much money in the stock market this way, so you need to find one good stock and focus on it. Still, you have to be sure, because putting all your capital into a toxic company is a fast way to go broke.
3. Bull markets fool the brain.
In a bull market even fools make money, so anyone, including the famous monkey throwing darts at random, thinks they are a smart investor because they made money in a bull market where everyone makes money. The truly smart investor makes money in both bull and bear markets, and often finds the best opportunities in bear markets.
4. Nothing in the stock market is truer than Keynes’ famous saying.
“The market can stay irrational longer than you can stay solvent” (John Maynard Keynes).
Jim Rogers tells how, in the 1970s, he shorted six companies. All six went bankrupt over the following two to three years. He says he felt like a truly smart investor, but he learned a big lesson: in the stock market we may know that something is going to happen, but not exactly when.
Correctly calling the bankruptcy of six companies can make you very rich, and Rogers was genuinely smart to get those short positions right. He was so smart that those shorts nearly bankrupted him, because the market took a long time to bring those six companies’ share prices down, and even though he was right, Rogers lost money on the short positions.
See also: To make your first million, keep these 7 things in mind
5. It doesn’t matter what we all know today. In 10 or 15 years it won’t be true.
Rogers says that if you take any year in history and look at what people thought at the time, 15 years later everything had changed enormously. Yet at that moment everyone was convinced the world would stay that way.
You have to think about the future and learn to go against popular opinion if you want to succeed as an investor. Many companies look like the future today, but in 15 years there will be companies nobody is betting on now that will be the real future in the short to medium term, while many of the companies we are betting on today will be forgotten in 10 or 15 years.
In other words, today’s question might be whether social networking will be dominated by Facebook, Twitter or LinkedIn. Perhaps the social network of the future has not been invented yet, or perhaps social networks have no future and their days are numbered. Who can know? Remember that what Google and Facebook are today, TheGlobe.com once was. That is why Buffett is even clearer about it: whatever happens, Coca-Cola will still be around.
6. If you want to be lucky, do your own research.
Following analysts’ advice and the financial news will not give you any competitive edge. What’s more, financial media, analysts and financial gurus have driven more investors into bankruptcy than any recession. Always do your own research. You may take a guru’s advice into account, but never invest on the strength of that advice alone. Invest on the basis of your own objective, detailed analysis.
7. The future is in China.
Rogers believes that one of the skills worth developing today is learning to speak Mandarin, because he thinks the future of business lies in China. He has bought DVDs and even hired a Chinese nanny so that his daughters learn the language.
8. For the long term, bet on Myanmar.
Myanmar is a country in Southeast Asia. Rogers says it has a small, attractive stock market with very few listed companies that are still developing. He thinks that people who invest in Myanmar now will be very rich over the next 20 to 40 years.
9. India is not a place for investors, though it is one for tourists.
Rogers thinks India has a terrible economic system, so it is not a place to invest despite the efforts of politicians whose measures sound good in theory but have turned out disastrous in practice. Even so, according to this legendary investor, India is incredibly beautiful to visit as a tourist.
10. I was poor once, and I didn’t like it. I don’t want to be poor again.
Even though money doesn’t buy happiness, it seems that everyone who has been poor and later became rich, for some reason, prefers being rich to going back to poverty. Strange, isn’t it? 🙂
Further reading
Featured image: Gage Skidmore from Surprise, AZ, United States of America, CC BY-SA 2.0, via Wikimedia Commons.
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