Jim Rogers is an investment legend… and we’ve shared his thoughts before (like here and here… and here). He’s one of the most successful investors in the world and has unique insight on the world of investing.
I’ve had the privilege to sit down and pick his brain about global markets several times. (It helps that we both live in Singapore.) Below are excerpts from a recent conversation (you can learn how to see the entire exclusive interview here).
During that discussion, I asked Jim about his investment process and what he thinks about when deciding where to invest. I’m happy to share his insight below.
Jim’s investment process
Jim likes to look at the big picture when making investment decisions (some of his best big picture ideas are found here. Below, he explains what he does after he sees the big picture.
Me: So, would it be fair to say that you start off from a macro level and then work down to micro? [In economics, the big picture is also called the “macro”, as in macroeconomics. The smaller details are the “micro.”]
Jim Rogers: Well, normally, yes. As I say, the Chinese government is spending a lot of money cleaning up China [more about this big picture can be found here]. That’s a pretty big macro approach. And then I see what’s going on. So then I say, “Okay, now how do I do something about it?”
I guess it could be a micro if I happen to run into a product or a company or something that seems to be exciting and promising. That too can lead to ideas. I don’t have any simple way to find ideas. I wish I did. Life would be a lot simpler. I guess I could just sit at my desk and wait for Morgan Stanley [the global financial services firm] to send me something, but I don’t normally talk to brokers or investors.
Me: So you have the idea. And then what are some of the steps in doing the actual research and converting the concept into something to buy?
Jim Rogers: Well, when trees grow to the sky [when everyone is excited about a stock or investment], you’re selling short [a strategy to profit from falling stock prices]. So, it’s not just buying, it’s selling. It depends on what you’re pursuing.
Annual reports, obviously you have to read the financial statements of companies. You have to do spreadsheets of numbers of the companies to see what’s going on. Do they have a lot of debt? High margins? Low margins? High return on equity? That sort of thing.
And then you talk to competitors, you talk to customers, you talk to everybody, suppliers. You talk to everybody you can to find out if this is right or wrong, and I still make plenty of mistakes.
Some of Jim’s biggest mistakes
Me: What’s an example of a mistake or two that you’ve made?
Jim Rogers: Very early in my career, I knew that the markets were going to collapse and so I sold short, everything [selling short is a way to make money when markets, or stocks, fall in value]. And low and behold the markets five months later, total collapse, chaos. Never been anything like it since 1938. People all around were going bankrupt. And, here I was making a fortune. You know, I couldn’t believe it. Triple my money in five months. And so I said, “This is so easy. I’m going to be so rich. This is just amazing how easy this game is.”
I sold my puts on the day it hit bottom. [Puts give you the option to sell a stock at a certain price on a certain date and they’re used by investors that think the price of a stock is going to fall.] Astonishingly enough, I mean this is an amazing story as I look back on it. I said, “Okay now I’m going to wait for the market to rally,” because I knew it would after that kind of collapse. And then I’ll really make a lot of money.
And this time I’m not going to pay the premium to buy puts, I’m just going to sell short. So, I went and sold six companies short. And, two months later I was wiped out. I lost everything. Almost had to sell my motorcycle. It was that bad.
And interestingly enough, within two years, all six of those companies were bankrupt. All of them. But I lost everything first because I didn’t know about markets. I didn’t know about timing. I didn’t know that markets could do really strange things. I just assumed that everybody knew what I knew.
Lesson learned: Don’t invest in the heat of the moment
Jim Rogers: One of the first lessons I learned, have learned is, people don’t know what I know, or think I know, so I have to learn. And my timing is horrible. I am the world’s worst market timer, world’s worst short-term trader, so I know that when I say it’s time to do something, I have to wait because I know I’m going to be early. And even then I get early sometimes.
So I made plenty of mistakes, but thank goodness I’m not married to that woman anymore. What a wretched life I would’ve had.
Me: So what you just said, when you think it’s time to buy, you wait. So how does an investor figure out what is a good buy and is it within 20 percent of…
Jim Rogers: I don’t know. I don’t know how to do it. If I were that smart, I’d be rich. Boy, everything would be great. One thing I do… I usually put in limit orders because I don’t trust myself for the timing. So I put in the limit order to buy or to sell [we explained limit orders here], and then, the market can do it for me… rather than sitting there in the heat of the moment, because I know I’ll get it wrong in the heat of the moment.
See the full interview
Jim shared a lot of his investing and life experience with me during this conversation, including where he’s investing now, where he’d like to visit again and why we should all be learning Mandarin.
You can find out how to see the entire video, Jim Rogers unplugged, by clicking here.