Jim Rogers Fund Made 4,200% While The S&P 500 Only Returned 47% by Lars Haugen
I recently re-read the book “Street Smarts” by Jim Rogers. It’s an excellent book. In it Rogers shares his timeless advice on investing and life, and I believe the lessons are so important that I decided to summarize them in this article. In a few minutes you will learn how one of the best investors in the world thinks and invests. If you are interested I suggest you read the full book.
I was first introduced to Jim Rogers when I was 16 or 17 years old. My dad had bought a book called “Hot Commodities” and for some reason I started reading it. I had no knowledge of, nor any inclination to invest in, commodities.
But I am extremely happy I read it. Apart from Buffett, Jim Rogers is the investor that has affected my thinking the most. In fact Buffett and Rogers are my two favorite investors of all time.
If you are already familiar with Rogers I’m sure you know why I respect him, but in case this is your first time learning about him I’ll give you a short intro.
Jim Rogers is one of the best investors in history, and that’s not an exaggeration. He co-founded the Quantum Fund with George Soros and between 1970 and 1980 the fund gained 4,200% while the S&P 500 only gained about 47%.
Rogers “retired” in 1980 at the age of 37 and has invested personally ever since. He has been in the business for more than half a century and his knowledge is unparalleled. He is one of the best thinkers in the industry
One of the things I appreciate most about Rogers is that he is unfiltered. He says it like it is, which is refreshing in a world where a lot of the financial news is BS. There are tremendous lessons to be learned from Rogers.
As the article is based on notes from a book I decided to break the article down into different headings. Furthermore, at certain points I simply present the facts as stated in the book because it makes the article shorter and easier to read.
I hope you enjoy it
P.S. I recently wrote a free guide called “3 Simple Must Read Books That Are Guaranteed To Make You A Better Investor.” Click the link to get the guide.
On Success And His Career
In ancient times the Greeks said “nothing endures but change”. Rogers says that success in life is measured by the ability to anticipate change. As an investor you must be able to think around corners. The way you accomplish this is by becoming an expert within an industry or field.
Rogers thrives on digging up information and this leads him to find information that others don’t. That is one of his competitive edges. And he works harder than most people (or at least he did when he was younger). He says that persistence is what makes the difference. You have to put in the hours and do it consistently. In that way you are able to see trends before others, which is one of the Rogers’ traits. He is able to see big trends before they happen, but he is usually 1-3 years early.
In school Rogers’ approach to studying was to do as much as possible so that he knew the subject by heart, then study some more just to be sure. There is no such thing as enough, just keep studying, researching or whatever the task is. When he did his undergraduate degree at Yale he was asked by another student how many hours he had studied for a particular test and he found the question strange because he hadn’t stopped studying. He just kept going.
Rogers does not think you should study economics or finance to become a successful investor, and he thinks getting an MBA is a bad decision, especially if you want to go into business. He believes you should study history and philosophy. History gives you a precedent that you can compare current market events to – history doesn’t repeat, but it rhymes. Many of the world’s best investors are students of history.
As for philosophy, investing is mostly a game against our own psychology, and learning some models to deal with our psychological weaknesses is extremely helpful. In fact, Charlie Munger has identified 25 common psychological causes of human misjudgement. Most investors lose money because they don’t practice the mental game. The truth is that we are hardwired to be bad investors (following the herd used to be a survival mechanism, today it’s a recipe for bad investing). As investors we have to constantly practice mitigating our own stupidity.
On Working on Wall Street
Hard work and intelligence is abundant on Wall Street, and everyone makes money during bull markets (there’s nothing like a bull market to think you’re a genius). But Rogers says that these people don’t last because they can’t make money in bear markets. They get bounced out of the industry. Persistence and perseverance is absolutely essential. And to succeed you have to be extremely curious, and also skeptical.
Rogers took a 75% salary cut to start the Quantum Fund, but money was irrelevant for him. His advice for people who are looking for a job is to first determine if the job is right for you, before discussing the salary. If it is the right job for you, Rogers assures that the money will come.
Rogers benefited from being an assistant. He believes the wise course is to start working for someone, and keeping your eyes and ears open. In my personal opinion the majority of millennials today are entitled (and I am speaking from experience). We believe we know everything and that the world owes us something because we have a university degree (or two). But the reality is that “everyone” has a degree these days.
Rogers studied growth investing under one guy, and trading under another. In both cases he was out of his comfort zone, which increased his knowledge. There are many ways to make money on Wall Street, so find the best way for you. And the way to find it is by testing different strategies.
On Going Bankrupt
Rogers went bankrupt in 1970, when he was 27/28 years old.
He says that you shouldn’t worry about losing money or making mistakes. It’s good to go broke at least once, preferably twice. But do it early in your career, when you don’t have much money to lose. Losing everything is good because it teaches you how much you don’t know. There is nothing wrong with failing if you learn from your mistakes.
I have personally made several mistakes that make me cringe when I think of them. The mistakes were a result of my greed, impatience, ego and testosterone. Not a good cocktail. In fact, one big problem that I see with the investing industry is that people don’t admit mistakes (how often do you see people on CNBC or Bloomberg admitting they were wrong?). The people who admit to their mistakes are usually the most successful investors. Buffett loves to talk about his blunders. He has been investing for more than seven decades and he still makes mistakes. If a guy like Buffett makes mistakes, you make mistakes too.
Rogers points out that if you achieve a lot of success you have to be especially careful. If you made a lot of money you are prone to thinking you are really smart, and that’s when you are most vulnerable. The rush you get from making a lot of money makes you want to do it again, and your hubris leads to mistakes. Therefore doing nothing is sometimes the wisest course. Do not confuse movement with action.
Lastly, there is nothing better than struggling and making your own way. If Rogers leaves his kids with nothing else, he wants to leave them with the courage to dream, to pursue their passion, and dare to try even if they fail. The only real failure is to not try.
Empires always overreach. I live in London (the one in England, not the one in Canada), and there’s no better reminder than the British Empire. England is doing relatively well (I say relatively) at the moment. London is one of the most important financial centres in the world and it benefits the country as a whole. But we can’t count on the City of London being so profitable forever. As Rogers points out:
In the 50s, 60s and 70s Wall Street and the City of London were backwaters, and they will be so again. Banking wasn’t sexy. It wasn’t until the deregulation in the beginning of the 80s that bankers started making a lot of money, and the profession came into vogue.
While attending Oxford in the 60s Rogers was told by a professor that people couldn’t care less about the stock market. The City of London was insignificant.
Britain was overextended before the First World War, and after the war ended the situation was even worse. The country had huge international debts. Exchange controls that lasted 40 years were imposed.
In the 60s Britain was on the verge of bankruptcy and growing less competitive. Nobody would invest in Britain, and the British could not invest elsewhere (because of exchange controls). Today we associate such conditions with a third world country.
Thatcher turned things around, but it was at the time they found oil in the North Sea, so that had a huge positive effect. City of London became an international financial centre under Thatcher. But the oil is now drying up, finance will be a bad place for the next 20-30 years (according to Rogers) and the country has huge debts. Britain is in decline.
History teaches us that what is undisputed today will look very different tomorrow. In 1914 the Austro-Hungarian Empire was an international centre of wealth. Within four years the empire was gone.
Historically the conventional wisdom that prevailed at the start of a decade was shattered 10-15 years later.
It might seem like history is repeating and that finance is going out of fashion again. Things are not the same as before 2008. People are skeptical about finance and Wall Street (understandably so). Finance is a useful industry, but now it seems like everyone wants to work in an investment bank or a hedge fund. And people who have absolutely no knowledge of investing want to invest in the market. They resort to mutual funds, which is a terrible idea, but that’s a discussion for another day.
And in case you think it’s unlikely that finance will go out of fashion, just know that it’s happened before. In the 1920s in the US it seemed like everybody was participating in the stock market. Then came the Great Depression and people didn’t seem to want to invest anymore.
On How To Invest And Analyze
After the oil embargo by OPEC in 1973 ended the oil price continued to climb, but the oil embargo had just been in effect 5 months. Rogers’ point is that the embargo wasn’t the underlying cause of the rising oil price, just a catalyst (contrary to popular belief).
OPEC had been formed in 1960 and every time the members met they had raised the price, but they were laughed at when the price went down shortly after. But when they raised prices in 1973 it stuck because oil shortages were developing worldwide. Nobody was drilling for oil. Reserve supplies were running out. The fundamentals were right, and that’s what matters.
Rogers invested in Lockheed Martin when it was in bankruptcy. The stock was depressed after the Vietnam War. Rogers flew to Washington and learned that even the Doves in Congress wanted more Pentagon spending on advanced electronic warfare.
Rogers was able to see a big trend coming, and he went against what most investors would do, investing in a bankrupt company. This is a recurring theme in Rogers’ career. He sees trends early, and by definition he therefore invests when the industry is out of favor.
Invest in what you know and in the things that are your passions. You will know much more than other people, and you will be able to anticipate trends and see coming trends better than others.
Make investments that you are extremely sure of, based on your extensive research. And buy when it’s extremely cheap. You should be so sure that it feels like walking over to a corner and picking up money.
You constantly have to check and re-confirm your research. The world is always changing. And today everybody has access to the same information, so your judgment is what will make the difference.
Resist diversification. Rogers says 10 stocks are too many. Concentrating is the way to make money, but it’s also a way to go broke very fast.
Rogers does not change his positions a lot because he invests in secular trends, which by definition last for years (or decades). He does not jump around, he sticks to what he knows and he stays concentrated.
Rogers invests differently than other people. He puts boots on the ground before he invests. He’s known for travelling all over the world and investing in the most unlikely places. He says that the black market is indispensable to one’s insight into a country. If there is a black market, and the currency is trading at a big premium to the official rate, you know there is a problem. However, you don’t know what the problem is yet.
Talk to a black marketer to really understand the country. And look at the state of the roads. Are there traffic lights? Are there proper shops? Are there real hotels?
In Botswana, when Rogers drove through the country, things were different than in other countries in Africa. No black market, no bribes, total efficiency, good highways etc. Rogers bought every share on the exchange in Botswana (there were only seven companies listed). Whenever there was a new issue, he bought more. He sold everything around 2007 and 2008 (after 18 years of great gains) because EM was being over exploited.
Commodities are simpler to figure out than stocks (e.g. nobody can completely understand IBM because it’s too complex). All you need to know about a commodity is if there is too much or too little of it (law of supply and demand).
When investing in a country there are certain things you should look for: good demographics (a big and young population), no exchange controls, no price controls, a stable currency, no high tariffs or rising protectionism, or other warnings signs (like restrictions on foreign ownership of land).
You want to invest in creditor nations because that’s where the savings and money is. The largest creditor nations are in Asia (China, Japan, Taiwan, Korea, Singapore and Hong Kong). Their savings rate is high. China’s is 30%, Singapore was 40% throughout the 1980s, which made it the success story it is.
The US had high savings up until the 60s, and when they started spending this money, investments grew and so did the economy, which lead to a long period of prosperity.
The over indebted nations of the West likely do not have a bright future. There is nothing wrong with borrowing money, as long as it goes into something productive that can pay off the debt. But if you borrow to consume and don’t invest in productive assets, you have a problem.
In the Great Depression the American stock market dropped 90%, but only bottomed for a few months. In Japan it has been over 20 years. Rogers says it’s because the government propped up companies and didn’t let them fail. We are now doing the same in the West and it’s likely creating a lot of damage.
Companies are not allowed to fail anymore, but as Joseph Schumpeter wrote “the process of creative destruction is the essential fact about capitalism”. Capitalism without bankruptcy is like Christianity without hell. We aren’t even allowed to have drawdowns in the stock market anymore. The moment Wall Street becomes scared, the Fed comes to the rescue.
People think that if a company goes bankrupt, or if the stock market falls more than 10%, the world will end. But bankruptcy and drawdowns are essential parts of the system. In 1907 the US financial system went under. But the 20th century was still the century of the US.
The world has suffered financial panics since the beginning of time. It’s not fun, but we get through them. In 1966 there was a staggering collapse in Japan. Every stock broker in Japan went bankrupt. Every one. Over the next 25 years Japan experienced phenomenal success.
Failure and bankruptcy is a natural way to keep the financial system healthy. With all the current government intervention around the world the potential consequences are large, and growing larger.
On Politics And Corruption
Rogers says that countries should be eager to let people in. That is what has made countries great in the past. If you open your window, some flies will come in, but you will get the benefit of fresh air and sunshine.
If it were up to Rogers, borders to all countries would be open. It would create a natural ebb and flow and countries would be more dynamic (new blood, new capital, new ideas). People eager to immigrate are usually ambitious and hardworking. In my opinion the potential problem with such an approach is that countries with social benefits will see people take advantage of the system.
Rogers has learned to distrust the government and recommends that every American does so too. Not allowing Americans to move their capital freely (which is happening today) is a form of protectionism and it encourages mal-investment because people can’t invest where they want.
Moreover the official numbers you get from any government is nothing but a mirage. The growth numbers are unreliable. How can anyone know what’s going on in a big country such as the US, China or India (or any other countries). Rogers does not pay attention to these numbers.
Historically politicians have made problems worse by introducing exchange controls. And they blame speculators. The politicians are diverting attention from the fact that they screwed up the economy.
Exchange controls are disastrous for a country. Capital stops flowing. Money is trapped inside the country and the country stops being competitive (who wants to invest in a country where they can’t move their money freely?).
Politicians want the currency of a country to go down, and they tell us it’s a good thing. But as a citizen you want your currency to go up in value because that means you have higher purchasing power. It’s usually the exporters that complain over a strong currency, and we are tricked into believing it benefits us citizens.
Rogers believes that the best solution with regards to currencies would be to let individuals decide what to use as a currency. When the UK was in trouble in the 1930s they made it an act of treason to use any other currency as a medium of exchange than the pound. Does that sound like democracy?
An economy rises and falls on the nation’s ability to attract capital. People put their money in a country because they trust the currency (it will not be worth a lot less when they want to take the money out). Protectionism doesn’t work.
The former Soviet Union tried to override the laws of supply and demand and the result was that they had nothing. Shortages were an everyday fact. People would stand in line for hours. Nobody produced anything because prices were set too low.
Rogers believes countries with too much debt should go bankrupt (it’s been happening for thousands of years). Investors will take losses, but countries like Greece can start from a new base. And they don’t need to leave the European Union. Individual states in the US have gone bankrupt, but they did not need to leave the country.
A return to the Drachma will be a bad idea because it will give the government a free pass to print money. A low Drachma will improve the balance of trade, but everybody’s net worth will have collapsed.
To solve the problem one can decide which banks will close, and which ones will survive. Everybody’s savings will be safe, checks will clear, depositors’ money will be protected and the banks will be ring fenced. But investors will have to lose money (which is the risk of investing).
On Future Investing Opportunities
Rogers’ research method is to go to the country he is interested in and see what is actually going on. If something real is happening he knows the country is growing.
Rogers thinks Myanmar is the most interesting investment opportunity today – sixty million people, huge natural resources, a highly educated and disciplined workforce, and in between India and China.
Rogers also believes North Korea will open up. This might sound strange, but just consider that Myanmar eventually opened up. And China is a completely different country today than a few decades ago. South Korea and Taiwan were once vicious dictatorships and Japan was a one party state. When I worked in Shanghai one of my bosses was Korean, and he told me that he hoped the country would open up. He said that families who lived in different parts of the country before the Korean War were suddenly divided and have not seen each other since.
Kim Jong-un and the young generals in North Korea have been exposed to the outside world, and Rogers believes that will lead to North Korea opening up. It will be a big player on the world stage. The Chinese are already pouring in. They are building bridges in the North East connecting the two countries. There are new trade zones up there.
Rogers believes Chinese tourism is going to be a great growth industry (both Chinese travelling in China and abroad).
All empires have ended badly because they simply spent too much money. They went into debt, declined and then collapsed. We are seeing the same in the West today.
Schumpeter said creative destruction is “the essential fact about capitalism”. Old things will be replaced by the new. It’s how it’s always been and always will be. My opinion is therefore that we should not complain about things changing. No matter if you like it or not, things will change. You can choose to profit from it, or be left behind.
I’ve covered a lot of ground in the article above. Given that it’s a summary of a book, I urge you to use it more as a reference, than just an article you read once. I am actually very grateful that I could read this book. Jim Rogers is one of the most successful investors in the world and he summed up his most important lessons learned from a 50+ year history in a book that cost $10-$15. That’s an insane bargain.
So I hope you learned a lot and I want to thank your for taking the time to read this article.
Until next time,
Lars Christian Haugen