Investment Greats: Jim Rogers

Published in Investing Strategy on 24 April 2009

Outspoken and entertaining, commodities guru Jim Rogers never follows the crowd.

Independence of thought, and an eagerness to challenge conventional thinking, are often considered essential to the successful investor, and few demonstrate these traits more strongly than commodities guru Jim Rogers.

Background

Born in 1942 in Alabama, Rogers showed a flair for business as a child, collecting discarded bottles at baseball games. After winning a scholarship to Yale, he gained a second degree from Oxford, and after a stint in the army he embarked on a career on Wall Street.

It was here that he met George Soros, and together they founded the Quantum Fund in 1969. Through the '70s, this hedge fund gained 4,200% at a time when the S&P 500 index rose less than 47%.

In 1980, at the age of 37, Rogers retired to spend more time with his money.

Travels

'Retirement' for Rogers was more active than most people's working lives. Following a period of lecturing and some television work, he set out to learn more about the world by seeing it first-hand. After biking through China and Russia in the late '80s, he started his world tour in March 1990, eventually clocking up over 65,000 miles on his BMW.

Rogers took the opportunity to talk to as many people as he could on his travels. His adventures are chronicled in his book, Investment Biker, and typical of the author, the book is not short of opinions.

A world tour by car followed from 1999 to 2001, which he documented in Adventure Capitalist.

Investment Style

Rogers' style is to start with the macroeconomic and political situation, and understand the major trends in the world. He's more concerned with being right about the macro, long-term, direction of play, than with short-term movements in the markets.

But unlike many 'long-term-buy-and-hold' (LTBH) investors, he is honest with himself regarding short-term losses, recognising those losses as real and accepting them, rather than trying to pretend that they don't matter: "There is no such thing as a paper loss. A paper loss is a real loss."

This philosophy was put to the test with his investments in China, which will have fallen sharply in value. In July 2007 Rogers said the Shanghai Composite Index was overvalued at 3,700, and that he would resume buying if it fell more than 40%. Instead, it rose another 62% to 6,005, before falling to a low of 1,665 last October, and now stands at 2,450.

Despite these swings, and despite regarding the Index as overvalued at that time, Rogers has not sold his Chinese investments, and has ventured back into the market. "Selling China in 2008 would be like selling America in 1908", giving an indication of the timescales to which he works.

But it's in commodities that Rogers' really made a name for himself, identifying long-term cycles in commodity markets and predicting in his book, Hot Commodities, that we are in the early stages of a boom.

As with his Chinese investments, his faith in commodities will have been tested following the collapse from their highs of last summer, but he remains convinced, seeing this a mere correction in a long-term bull market. Critics say he just got it wrong, and that a multi-year recession/depression will result in continued oversupply of metals, oil, and agricultural produce.

Politics

In addition to basic supply and demand considerations, Rogers sees the argument for commodities as being bolstered by the quantitative easing (i.e. the printing of money) that is happening around the world. While individual countries have chosen in the past to debase their currencies, this is the first time that it's occurring globally, and in his view this can only lead to inflation.

And even though he's positioned well to gain from this inflation, he's very vocal in his criticism of the policy-makers who will create it. "It's good for me, but it's bad for the world … No country in the world has ever succeeded by debasing its currency". Unlike most politicians, he regards recessions as a good and necessary part of the economic cycle, killing off weak businesses and facilitating the transfer of wealth from the incompetent to the competent.

Accusing both Alan Greenspan and Ben Bernanke of impeding that process by propping up their friends on Wall Street, Rogers would have allowed Long Term Capital Management, AIG, Fannie Mae, and an array of banks, to fail. Bailing them out is "socialism for the rich". Unsurprisingly, he is supporter of Texas Republican congressman Ron Paul.

Current positions

Rogers remains bearish on Western world equities generally, and says he is not participating in the market rallies of Spring 2009, which he expects to be short-lived, with the market going on to reach new lows.

He has started to invest again in China, particularly in sectors dependent on locally-driven growth, such as agriculture, water treatment, and infrastructure, rather than businesses focused on exports to a declining Western world.

Commodities are still his main focus, but he is less enthusiastic about gold (although he hasn't said that he sold any) due to fears that the IMF is about to flood the market.

He continues to be bearish on the dollar, sterling, and euro, relative to the yen, renminbi and Swiss franc.

In recent years he moved to Singapore, so that his young daughters will grow up learning Mandarin and focused on Asia, which he sees as the economic powerhouse of their future. His latest book, A Gift to My Children: A Father's Lessons for Life and Investing, will be launched here in May, and includes these three tips for his girls:

  • Question everything;
  • Never follow the crowd; and
  • Beware of boys.

While the third of these may be less relevant to his own life, Rogers has certainly practiced what he preaches with regard to the first two.

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Comments

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macroeconomix 24 Apr 2009 , 6:03pm

Along with Peter Schiff, and Marc Faber, Jim Rogers is really someone all investors (and politicians, and central bankers) would do well to listen to!

Luniversal 27 Apr 2009 , 9:43am

"One of the world's leading investors voiced the markets' concerns. Jim Rogers, of the Singapore-based Rogers Holdings and co-founder of the Quantum fund with George Soros, told Bloomberg Television: "I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK.""

(The Independent, Jan. 25, 2009)

actiondan 28 Apr 2009 , 12:54pm

I like the quote:
"Unlike most politicians, he regards recessions as a good and necessary part of the economic cycle, killing off weak businesses and facilitating the transfer of wealth from the incompetent to the competent."

Seems like the government is obsessed with trying to keep the money in the hands of the incompetent though (including themselves - not as they have any money since they're flat broke though).

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