WASHINGTONWith the market value of Warren Buffetts Berkshire Hathaway down 30 percent in the last year, financial oracles seem highly overrated.
But a few got things right. Jim Rogers, the legendary American investor, repeatedly warned against the real estate bubble and the fundamental weakness of economies that relied on credit without savings. People should pay attention to his latest book, A Gift to My Children: A Fathers Lessons for Life and Investing, a short volume with advice to his daughtersand all of us.
Rogers, 66, founded the Quantum Fund with George Soros in 1970. He obtained returns of 4,200 percent in 10 years and then left to tour the world, first on a motorbike and then by car, with the eyes of an adventurer as well as an investor. In 1998, convinced that an imbalance between supply and demand would drive up the price of commodities for a long time, he founded the Rogers International Commodity Index. He recently moved to Singapore with his family; he wants his two young daughters to be bilingual in English and Mandarin.
In 2002, he wrote that, contrary to reports of low inflation, everything in America was expensive. He warned that the lack of savings, the gaping deficits, the mounting debt, and the looming war in Iraq would wreck the economy (and, eventually, the dollar). He declared that those who think that real estate is guaranteed money making are living in a dream.
In his new book, Rogers gives examples of how he defied mob psychology from an early age by looking at the fundamentals of economies, industries, and companies, rather than just price charts.
There is nothing really all that new about what is happening to Americas auto industry. In the 1960s, people told General Motors that the Japanese were comingto no avail. Those who bet on Toyota anticipated the ruinous state of the Big Three today. Similarly, anyone who looked at China carefully in the 1980s could see a juggernaut on the horizon.
Creativity and innovation are so powerful that they can beat the mastodons in the marketplacethe reason why, Rogers reminds us, Apple was not crushed by IBM, as so many predicted. The mob mentality lies at the root of many disasters. Rogers learned that lesson when, observing that there was too much supply, he sold oil short in the early 1980s but, following the crowd, panicked and reversed his decision when the Iran-Iraq war broke out. Eventually, oil fell as he had anticipated, but it was too late to profit. We, in turn, learned the perils of the mob mentality in recent years when we bet on a never-ending real estate boom.
Rogers encourages his daughters to be citizens of the world and not fear other people because they are basically the same, no matter what ethnic group. That is his answer to the growing sentiment of isolationism and xenophobia on the part of some of our leaders and citizens.
Studying history is a good antidote to that danger, he suggests. If it doesnt repeat itself, history at leastin the words of Mark Twainrhymes. Indeed, the lesson of 1929 should have prevented the real estate bubble, and that of Japan in the 1990s should have discouraged the bailout frenzy that has been the worlds response to the financial meltdown of the past year. Be ethical, Rogers recommends, because the extension of civilization requires playing by the rules, the lawprecisely why, for him, Russia, the land of outlaw capitalism, is doomed.
I asked Rogers if he thought that capitalism would eventually open up Chinas political system the way it did in South Korea and Taiwan. It is indeed happening as it did elsewhere in Asia, he told me. I first went to China in 1984 when there was one TV, one radio, one newspaper, etc. Now they are everywhere, much less the Internet. There are now thousands of demonstrations annually in China while there were none in 1984. Chinese citizens can also now travel easily and do so, so they know how the world works.
Legend has it that Pythia, the priestess of Delphi, delivered the oracle in a state of frenzy, enveloped in vapor. Bow-tied Jim Rogers is cooler than that. He just looks at the world, wonders if we have all gone mad, and enjoys life while investing. He is an eccentric who knows the center of things. Maybe that makes the rest of us the real eccentrics.