Legendary investor Jim Rogers is back with his sixth book: “Street Smarts – Adventures on the Road and in the Markets”! Published in the spring of 2013, this book is a recollection and a self-styled memoir of Rogers’ own life, investment experiences and his observations from his many travels around the globe.
While there were many book reviews done on Rogers’ latest book since it’s release, this post would be drawing some takeaways and educational insights that I personally got from reading the book itself (which is littered with investment wisdom):
(I) Invest In What You Know Best
Rogers writes, “The way you become a successful investor is by investing only in what you yourself have a wealth of knowledge about. Everybody knows a lot about something. Cars, fashion, whatever it is. . . just take a look at your daily life. Concentrate on what you know. . . you will see a major change coming long before anybody on Wall Street will.”
The shrewd investor only invests in things that he understands. They want to know how the returns on their capital are generated, and only by understanding thoroughly and doing their due diligence can they know how their money is made. This remains an essential habit of all successful investors – making them known for an area of expertise (a niche) or what psychologists call a circle of competence. Sticking to what you know best will ensure that you operate in an area that you know you have an edge over others – and that is how money is made.
Additionally, operating within your own circle of competence takes a lot of discipline to wait for the right investment opportunities. As Rogers writes, “most successful investors do nothing most of the time. Do not confuse movement with action. Know when to sit and wait.”
(II) Resist Diversification
True to his own contrarian investment philosophy, Rogers writes that the winning investor does not diversify. This does not mean that an investor should “put all eggs into one basket,” – it simply implies that great investors run concentrated portfolios. He writes, “if you want to make a lot of money, resist diversification. Brokers promote the motion that everybody should diversify. But that is mainly to protect themselves. The way to get rich is to find what is good, focus on it, and concentrate your resources there. But make very sure you are right.” In the early 1980s, Rogers, after doing his research on Europe, sensed that a great bull market is about to take off in West Germany, and he put a big portion of his net worth into German financial assets, and was rewarded greatly in the following few years when both German fixed income and equity markets took off in a secular bull market.
This could also be a follow-up point from the previous takeaway about investing in things you know best. The professional investment industry in recent times have touted diversification as a way or preserving investment portfolios – which isn’t a totally invalid idea. However, most investors these days are diversifying for purely diversification purposes and diversifying into things that they do not understand, which in the long run, could also be dangerous (because it implies an increase in risk exposures).
(III) Look Where Others Don’t Want To
Being a contrarian investor, Rogers believes that opportunities are abundant in places or areas which most people ignore or overlook. In the investment world, places or areas where the majority of investors tend to overlook usually are markets or segments where they haven’t been performing, or aren’t exciting (usually because they have been under-performing) and dull in nature.
Throughout the mid 1980s to the late 1990s, commodity prices (represented via prices of commodity futures contracts) as a whole continued to fluctuate along with business cycles, but Rogers noticed that the overall trend for 18+ years was downwards. Not much new investments were made to improve capacity and not many businesses were going into the resources and materials industries, and Rogers’ research showed that the much of the known financial world do not have many investment vehicles that allow investors to gain direct exposures to commodities (indicating the lack of interest from the investment community). Sensing a great bottom in the commodities market, Rogers started his own commodity index in 1998 and started to heavily invest in the segment – and the rest is history, with the start of the recent commodity super-cycle that roared through the 2000s for a decade. This is a classic example of looking where others don’t want to or ignore, and checking if the crowd’s ignorance is unwarranted and wrong.
“Street Smarts – Adventures on the Road and in the Markets” is still sold in bookstores, and its a light read, with many readers feeling as if Rogers is talking to them about his own experiences and memories. It definitely is a worthy finance read for both finance and non-finance professionals that can easily be read in a cafe over the weekends or simply at the beach side!