Jim Rogers: How He's Investing After the Crisis

As the global investor and adventurer offers lessons to his daughters in a new book, he still favors commodities and scorns diversification

By David Bogoslaw

Veteran investor and world traveler Jim Rogers' new book, A Gift to My Children: A Father's Lessons for Life and Investing, will be published by Random House on Apr. 28. BusinessWeek investing reporter David Bogoslaw spoke by telephone with Rogers, who now lives in Singapore with his wife and two young daughters (ages five and one). Here's what he had to say about investing, the financial crisis, and lessons learned.

In your book, you advise people to thoroughly educate themselves about a subject before they ask for advice from reputed experts so that they can truly evaluate the worth of the advice. How practical is that for investors who aren't professionals like yourself?

The people you're describing should not be investing at all, unless they invest in things they know a lot about. If you're an auto mechanic, you'll know much more about your field than anyone on Wall Street ever will. You'll know when new products or processes are coming out. Those people can get extremely rich by just staying with what they know. It could be products that go into cars, like tire companies, or glass companies, rather than [only] auto companies. They shouldn't try to compete with Warren Buffett.

So you reject the advice about diversified portfolios?

Diversification is something that stock brokers came up with to protect themselves, so they wouldn't get sued [for making bad investment choices for clients]. Henry Ford never diversified, Bill Gates didn't diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket.

You can go broke diversifying. Ask anyone who's diversified in the last three years. They've lost money. Nonprofessionals are always jumping around, thinking they have to do something. If they have a big success, they think they need another one right away. That's when hubris sets in at its worst. That's when people really should go to the beach. It happens to me too.

You believe there is a need for more restrained spending and a higher savings/investing rate in the U.S.—closer to what you observed in China two decades ago. But economists warn that if everyone opts for higher savings at the same time, it will kill consumer spending completely and hamper economic recovery.

You'll never see America save one-third of its annual income [the way the Chinese once did]. Even Japan is down to a 15% savings rate. America should increase its savings rate. Thirty years ago, America was saving 9% or 10% of its income.

The reason we're having this crisis is everyone borrowed too much. The idea that you can solve a period of horrible borrowing and spending with more borrowing and spending is not going to work. We've had the worst credit excesses in world history, mainly in the U.S. You can't end a problem like that with no pain. Somebody's got to suffer.

You've been very vocal in criticizing the government policy responses to the financial crisis. Doesn't the Lehman example show how much harm would have been done if the government had allowed other big financial institutions to fail?

It would be better to let some of them fail now, rather than wait for six or eight of them to happen all at once. The system can recover from bankruptcies. After Lehman went down, the stock market didn't really collapse right away. It happened a month later, but people started blaming it on Lehman in hindsight. We've got to have some pain. Even if AIG (AIG) and Fannie (FNM) and Freddie (FRE) and Lehman all went bankrupt, it cleans out the system.