Investing is hard work.
He told Financial Times in an interview that as he was not smarter than most, he was willing to work harder.
A trait that held well for him was his willingness to examine conventional wisdom. If everyone thinks one way, it is likely to be wrong. If you can figure out that it is wrong, you are likely to make a lot of money. He spoke about General Motors in the 1960s when a GM analyst went to the board of directors with the message: “The Japanese are coming.” Being the world’s most successful company, they ignored him. Investors who did their homework sold their GM stock – and bought Toyota instead.
He looks for “something” that is very cheap, where a positive change is taking place. Then he does enough homework to make sure he is right. According to the New York Times, he spent 6 years looking for the right home. In 1977, when the real estate market collapsed, he picked up a home on New York’s Riverside Drive for $107,300. Three decades later, he sold it for $15.75 million.
When his bet on Helmerich & Payne, a contract drilling company, paid off, a friend attributed his success to luck. Lucky? If you want to be lucky, do your homework. Rogers invested when business was bad but understood that the fundamentals were right. The due diligence paid off, not luck.
Stay focused.
Invest only in things you know something about. The mistake most people make is that they listen to hot tips, or act on something they read in magazines. Most people know a lot about something, so they should just stick to what they know and buy an investment in that area. That is how you get rich. You don’t get rich investing in things you know nothing about.
In A Gift to my Children he narrates an incident where some smugglers in Namibia, Africa, sold him a diamond “worth” $70,000. Since he picked up on their desperation, he bargained them down to $500. A fabulous deal. When a diamond trader in Tanzania saw it, he told him it was a glass bead. Lesson: You may know the value of diamonds, but you need to be able to tell a real one from a fake.
Invest time. Collect all available information. Research every detail. If you merely dabble in knowledge, you are gambling, not investing.
When you buy shares, you sit and wait. But the world is constantly changing and the stock price will keep jumping. Constantly confirm your research. Are your insights still valid? Remain observant. Continually reevaluate whether your initial decision was correct.
Stay with what you know. Do not jump around. Invest rarely and in a concentrated way. The downside is that if you are not as smart as you think you are, you could lose everything.
Stay grounded.
There’s nothing like a bull run to make people think they are smart. He once remarked how people mistake a bull market for brains.
When you see many people being unrealistic. Stop and make an objective assessment of the supply-and-demand equation. This basic principle will bring you much closer to success. In one of his books, he reminds the reader about the change in supply and demand in silver. It tumbled from $50 in 1980 during its mania to under $4 a couple of decades later.
This entire year, in various media, Rogers has been cautioning investors at large that a market collapse is coming. All big bull markets end in a bubble. All bubbles look the same. There are no rules in bubbles. During a bubble, everyone thinks what is happening is quite rational. And prices will continue to rise. The price of a stock goes up because the price is going up. In an interview with Forbes this year, he quoted Templeton: “the most dangerous words in the investing world are “it is different this time.” It is never different. I am not the first person to figure this out.”
Stay grounded. Don’t get ahead of yourself.
