Although Rogers has dealt in a wide variety of asset classes, from stocks to bonds to commodities, his investing principles are just as applicable to retail investors as they are to institutional players.
Why trading is not investment, and why price does not equal value
We have written previously on the difference between speculation and investment. In an interview with Jack Schwager in his book, "Market Wizards," Rogers provides his own distinction:
"I don’t consider myself a trader. I remember when I went to buy German stocks in 1982, I said to the broker: 'I want you to buy me X, Y and Z stocks.'
The broker, who didn’t know me, asked, 'What do I do next?" I said, 'You buy the stocks and send me the confirmations.' He asked, 'Do you want me to send you some research?' I said, 'Please don’t do that.'
He asked, 'Do you want me to send you opinions?' I said, 'No, no, don’t.' He asked, 'Do you want me to call you with prices?' I said, 'No, don’t even give me the prices, because if you do, once I see that these stocks have doubled and tripled, I might be tempted to sell them.
I plan to own German stocks for at least three years, because I think you are about to have the biggest bull market you’ve had in two or three generations.' Needless to say, the broker was dumbfounded; he thought I was a madman.”
Although such extreme long-termism and disregard for price might be a bit too much for even the most ardent proponent of the Ben Graham value investing school, the overall principle here is recognizable: price does not equal value.
Although such extreme long-termism and disregard for price might be a bit too much for even the most ardent proponent of the Ben Graham value investing school, the overall principle here is recognizable: price does not equal value.
Traders and speculators are concerned with price action; value investors care about long-term value. In this case, the long-term value was in a German market that had been underperforming for decades, even while the underlying economy was booming. As it happens, the market-friendly Christian Democrats came to power and ousted the ruling Socialists in 1982, triggering exactly the kind of bull market that Rogers was forecasting.
Why doing nothing is often better than doing something
Even conservative investors can fall prey to a fear of missing out on what they perceive as an opportunity to make easy money. Rogers expands on this point in the same interview:
“One of the best rules anyone can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people - not that I’m better than most people - always have to be playing, they always have to be doing something.
Why doing nothing is often better than doing something
Even conservative investors can fall prey to a fear of missing out on what they perceive as an opportunity to make easy money. Rogers expands on this point in the same interview:
“One of the best rules anyone can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people - not that I’m better than most people - always have to be playing, they always have to be doing something.
They make a big play and say, 'Boy, am I smart, I just tripled my money.' Then they rush out and have to do something else with that money.
They can’t just sit there and wait for something new to develop…I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
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