Investment pearls from Jim Rogers in A Gift to My Children

I read the book to glean useful investment advice and discovered his thought process behind his investing decisions. Most of all I was impressed by his thoroughness in doing research. Rogers in his early days on Wall Street over valued his senior colleague's opinions but observed over time that they ended up as failures. He found that if he did his own extensive research, he outperformed. For example, he recommended the bankrupt Lockheed n the 1970s when the company was widely shunned by analysts. The company had just shed a money losing division and was focussing on electronic warfare. It went up many times after defense spending increased after a period of decline. He sensed China's potential in the 1980s when others were fearful that the communists would confiscate foreign accounts. He learned as much as he could about the political trends and drove through it twice. He sensed capitalistic drive in the one billion workers who also saved one third of their income. His prophesy came true over the next decades when China's economic growth exceeded that of nearly every other nation. Rogers emphasizes attention to detail when doing investment research. He would check every piece of information needed to make a decision. He says the most common reason people fail is because their research is faulty or limited to what is immediately available. Meticulous research gives you a distinct advantage over your competitors. Besides reading everything and verifying financial statements and projections, he recommends talking to customers, suppliers, and competitors. In the 1990s, there was no better value on Wall Street than Sears. But investors were blind sided by Walmart. They failed to examine what was happening in the small towns across America. When investing in a nation, he begins by assessing the strength of the basic institutions: Do they have respect for the rule of law? Do they crack down on corruption? Does the legal system facilitate ethical behavior? You must also travel the country to see if there is a currency black market which would imply problems due to government trying to impose artificial controls. In the 1970s when oil was at three dollars a barrel, most thought it would remain low due to new drilling technology and new oil discoveries. Jim's research showed that demand would exceed supply and as a result invested in 1971. Ten years later when oil was at thirty five dollars a barrel, everyone was investing in oil. He shorted because he felt the market was overheated and the high prices slowed demand. He did not get back into oil till 1998. Rogers said his students at Columbia were surprised at how much detail he brought to bear when making investment decisions. He feels it is necessary to transcend conventional wisdom. Thus, Jim's approach has many similarities and differences to Munger's approach which I outlined in my last article.