Different Investing Strategy

[harley]

I was reading the most recent Kiplinger's magazin today, and they had an article entitled Learn From The World's Great Investors. Learn from the World's Great Investors - Kiplinger.com

Buffett, Grantham, Gross and others gave mostly common sense, every day advice. However, Jim Rogers from Rogers Holdings had a different take.

Diversification is garbage -- it's something brokers invented to avoid getting sued. You only need four or five good ideas in your life to get really rich if you avoid mistakes. And the one way to avoid mistakes is to stick with what you know, whether it's clothes or cars or commodities. Then, when you see a major development in your area of expertise, you'll know better than Wall Street when to buy or sell. Otherwise, you should put your money in the bank.

It sounds to me like a sort of smart ass answer. But maybe not. However, my area of expertise was tech, specifically networking and security. I was pretty good, highly informed. I did make a couple of good investments in Cisco and Checkpoint, but I suspect I wouldn't have had any money to invest in them after making all the wrong calls I made. Sun, Adobe, Sybase, Symantec, etc, it goes on and on. I also think Mr. Rogers wouldn't have gotten as rich had he not had access to OPM.

What do y'all think?

 

[Zathras]

I think there is definately something to be said for investing in companies you know, and understand (both the company and market).
That being said, I also feel that investors will never know every aspect of the businesses and unexpected results can always pop up.
So yes, you stand to gain more if you put all your chips on red and spin the wheel, but if the unexpected does happen, you end up loosing a whole lot more as well.

 

[donheff]

Lots of people lost their shirts by leaving the bulk of their investments in a company they knew and trusted - their employer. Of course, if you pick right you are rich. But where are the statistics to document how a large sample of people who think they know the right choices do with those choices? All you get from this sort of question is a self selected set of lucky winners. The losers don't respond and, if they did, would be dismissed as deluded about their sector knowledge.

 

[brewer12345]

There is some truth to the quote. 4 or 5 home runs will make your portfolio, for sure. But what if one or two of your "great ideas" is in fact a strike out? So diversification and hitting lots of singles works for most people.

Mr. Rogers has an investment management business to run and has to say provocative things in the press to attract attention and investor money.

 

[LOL!]

Whenever I see someone who "made it big", I like to see their track record. If one deal stands out and everything flowed from that one deal, then I am not as impressed as by someone who consistently had successes.

The same goes for investment managers. It is not unusual for one call to have made their name, then back to obscurity. I'm thinking of Elaine Garzarelli. Even Peter Lynch made is name from Fidelity Magellan during a great bull market run.

And the same for recommended picks or portfolios. In the old days, you would see Money, Kiplingers, SmartMoney, Fortune, etc expound on a previously suggested portfolio performance. Mentally, I would take away the top performing stock in the portfolio and guesstimate the performance. Not good.

Thus I would attribute almost all outcomes to chance and luck.

 

[ziggy29]

The same goes for investment managers. It is not unusual for one call to have made their name, then back to obscurity. I'm thinking of Elaine Garzarelli. Even Peter Lynch made is name from Fidelity Magellan during a great bull market run.

Good call on Garzarelli here. How many years did the financial rags consider her a "guru" for "calling" the crash of '87 before they realized she was a one-and-done?

 

[harley]

I think there is definately something to be said for investing in companies you know, and understand (both the company and market).
That being said, I also feel that investors will never know every aspect of the businesses and unexpected results can always pop up.
So yes, you stand to gain more if you put all your chips on red and spin the wheel, but if the unexpected does happen, you end up loosing a whole lot more as well.

I actually think that knowing a certain field well might even be a handicap. In my case, since I was in the middle of the internet deployment I was thinking that the companies I dealt with were hugely important. And they were. To what I was doing. But not to end users or Wall St. It's easy to get an overly inflated opinion of what you are doing.

As far as Mr. Rogers (I love calling him that ) quote, I particularly liked the "You only need four or five good ideas in your life to get really rich if you avoid mistakes" part. I think that's pretty unarguable, but I also think it's pretty difficult to do. It's sort of like saying "it's easy to win the lottery, all you have to do is pick the right numbers".

I guess I was really surprised to see that quote in the magazine. It was a bit shocking up against all the other illustrious investors advice. I guess that plays to Brewers comment about attracting attention.

 

[haha]

Jim Rogers' original success came when he worked for Soros I think at Quantum. Late 60s or early 70s Rogers decided that the US oil industry, and particularly oil service industry, had been underinvested for many years. They put a large bet in this sector, and it paid off. Most people can't bet big even if they have pretty high confidence in an idea. It is just too scary. Of course it also helped that it was other people's money being risked, and Rogers and even Soros were quite young with entire careers ahead of them.

But this is a skill, not mere luck at all, to look under the right rocks and realize what you are seeing when you find something. The average person would just recall what every knows, this person says, that person says, etc.

"There is a tide in the affairs of men when taken at the flood leads on to fortune." spoken by Brutus in Julius Caesar.

Ha

 

[Ed_The_Gypsy]

Jim Rogers can do a lot of research that I can't do.

Having said that, I am placing small bets on oil & gas, health care, real estate and China (indirectly), all of which I expect to prosper in the future. For the first time, I have also placed a small bet on my current employer (again, in O&G) as it is a simple situation that looks good.

I am diversified in a slice-and-dice way. I will never hit the home run, but I am getting lots of base hits, and that is what wins a ball game.

Ed

 

[DblDoc]

Lets ask the insiders at Enron, Worldcom and Lehman Brothers how this strategy worked for them...

DD

 

[audreyh1]

Jim Rogers always give smart-ass answers!

But he has picked his own unique path, and does his thing, and seems to be successful enough at it. Good for him!

But I am not interested in spending the rest of my life as a professional investor, so diversification works good enough for me!

Audrey

P.S. I was lucky enough to hit a home run before retiring, so I don't expect a repeat!

 

[Running_Man]

Thus I would attribute almost all outcomes to chance and luck. ---- LOL

This was a comment on a website about Jim Rogers which pretty much sums up why I am such a huge fan of Jim Rogers and his way of thinking. If you are a very linear thinker you will agree with the writer's critisicm of Rogers. For the writer to not see the absolute genius in Roger's statement shows why Rogers will always no matter what happens to him be able to regroup while the writer will be going for the latest back tested indexing platform.

Another thing about him that bothers me is his method of analysis. Many of his investment opinions are famously based on his experiences of traveling around the world and spending time in different countries. Although there is nothing wrong with using this method of analysis as one of your research methods, he seems to be very light on data-driven research. The research he quotes to back up his opinions are mostly comprised of stark, anecdotal observations. In one interview, he was asked if he continuously assesses the supply and demand fundamentals and how often he looks at them. He replied: "I don't have an answer to that. If I see in the headlines that they've discovered a gigantic oilfield, I'll notice and I'll think about it."

Jim Rogers is someone who in 2006 forsaw the subprime mess would wreck the American real estate values, and did something about it -- he sold his mansion in New York and moved to China. He shorted investment banks and housing stocks Rogers Bets Against U.S. Investment Banks, Housing | VInvesting.com And to the person who bought his house - he was on record as saying the property values for houses such as his could fall 50-80 percent. I think that is a pretty good disclosure statement.

Belated Take on Jim Rogers’ Prediction of Housing Market Meltdown « naked capitalism

As for tracking his major hits and misses:
Jim Rogers Blog: Jim Rogers Hits and Misses

His macro focus common sense talk make perfect sense to me. To me I don't have to agree with him, I combine what I know is his unique knowledge base with what I see and know to determine what I should do. To claim as passive investing proponents for individuals such as Swensen that one does not need any knowledge whatsoever and actually hinders you, when believed and becomes an ingrained "truth ' by a majority of the population, merely makes his methods more profitable.

Question everything, never follow the crowd, and beware of boys!” Jim Rogers

Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals. That is the advice of David F. Swensen, who has run the Yale endowment since 1988, relying on a complex strategy that includes investments in hedge funds and other esoteric vehicles

Of course he makes his money for Yale though exotic investments far too difficult for individuals to understand. But he did have a theory for the "average" investor and wrote a book in 2005 for it:

Here is a link to a chart of the portfolio Swensen reccomended to eliminate risk and need for an investor to think through diversification in 2005 - 2009 results are reported quarterly. His portfolio is on track to earn zero since he reccomended it. Of course the 20% inclusion of real estate at a time it back tested so well is hurtin today. I am confident he'll come up soon with a new index portfolio which will both back test and recover better than what he proposed.

Chart of David Swensen Portfolio

 

[Nords]

It sounds to me like a sort of smart ass answer.
What do y'all think?

If Jim Rogers really wanted to contribute to the subject (instead of just keeping his name in the news) then he'd study the mistakes of those whose concentrated portfolios failed, and what led to those failures.

Jesse Livermore, Julian Robertson, and Donald Trump come to mind.

 

[Animorph]

Back when I was investing in tech stocks (after the crash), I felt comfortable investing in companies within my area of technical expertise. However, there was no way I could truely evaluate the management and business competence of most companies. I limited my position in any one company to about 5% of my portfolio. I had plenty of losers, but also quite a few multi-100% winners.

Betting on even just a handful of companies you don't work for is pretty much just a gamble.

 

[novaman]

I think this was the approach taken by many successful investors in Glassman's "The Secret Code of the Superior Investor".

He noted that by and large, these investors were diversified in a handful of Companies (as apposed to index fund type diversification), and just held them for very long periods of time.

 

[cardude]

I think a concentrated approach can work while you are young and accumulating, when you have enough time to make up for mistakes and blowups. However, when you get older, and when you have accumulated "enough", it's better to diversify out of those big winners and build a more "normal" looking portfolio.

That's what I did anyway. Our small (now defunct) auto dealership threw off a decent amount of cash over the years, and I took the money out of that business and put it into a few good investments-- Cisco, Intel and MSFT early on, and then sold out and bought Berkshire. I still hold a big percentage of our portfolio in Berkshire, but I'm working on getting out of that and building a diversified 50/50 "normal" stock bond portfolio. Lot's of luck was involved in my approach, and tons of risk, but it worked out pretty well.

 

[Free To Canoe]

You don't read something called "World's Greatest Investors..." to learn how to up your bond portfolio a percent. Some of the world's greatest "investors" post on this forum. By investor I mean getting return without undue risk.

Rogers is a trader, not an investor. I find his insights into trends interesting.

Many can manipulate data to make it say what they want in most cases. After seeing this alot (financial industry) one almost becomes skeptical of data in general. Seeing trends but not being able to accurately quantify them may not be an essential ingredient for being a World's Greatest...

Free to canoe

 

[ERD50]

I think this was the approach taken by many successful investors in Glassman's "The Secret Code of the Superior Investor".

He noted that by and large, these investors were diversified in a handful of Companies (as apposed to index fund type diversification), and just held them for very long periods of time.

I haven't read the book, but studies like this often fall into the "survivorship bias" trap. Just because some successful investors used this technique does not mean that 1,000 investors using the technique would do better than average. Did he interview people who tried that technique and are living in cardboard boxes now? Doubtful, not too many interviewers search out those people for investment advice. But if you don't include the losers, you don't get the whole picture.

-ERD50