What follows is an attempt to simplify the strategy of one of my experts, Mr. Jim Rogers. I consider Rogers one of the most successful investors in history. The following simple steps will explain the strategy and from them will emerge a set of investment rules.

1 - THE HATED ASSET STRATEGY

I would state Roger’s investment strategy as buy “hated assets,” which everyone else is selling or has sold, and hold them until they rise to “bubble” levels, when everyone else is buying them or has bought them, then sell. This yields the first rule.

RULE 1 – BUY WEAKNESS AND SELL STRENGTH. I have heard Jim Sinclair say this many, many times. Usually there are several years between the buy and the sell. What’s going to happen in the next few weeks or months is almost always already reflected in the price of the asset.

RULE 1A – NEVER BUY FOR WHAT’S GOING TO HAPPEN IN THE NEXT FEW WEEKS OR MONTHS. BUY FOR WHAT’S GOING TO HAPPEN IN SEVERAL YEARS.

So how do we find “hated assets” which are being thrown away, but have a great future? I assure you I can’t do it. Rogers (or one of my other experts) must identify them and tell us when he is buying them. Example: He bought more than 30 different commodities in 1998, mentioning it every day on CNBC. In his 2004 book Hot Commodities, he explains why commodities were “hated assets” selling at rock bottom prices, with great intrinsic value and strong fundamentals. He also explained why he expected to hold them for 17 to 20 years. He is still holding them today. That suggests a second rule.

RULE 2 – DON’T ATTEMPT TO TRADE IN AND OUT – HOLD UNTIL ROGERS IDENTIFIES THE BUBBLE STAGE AS EXPLAINED BELOW.

Question: What about trend channels, moving averages, stop-losses, chart patterns, technical indicators, etc.? I have never – ever – heard him even mention any of these. Rogers declares himself to be the world’s worst short-term trader, so he doesn’t do it. I gave up on short term trading long ago. I gave up on using stops long ago. I admit that I have used them in the past and would not criticize those who use them, but I have found I do not need them using Roger’s strategy.

Question: What if your investment starts going down? Rogers holds through any and all corrections until he perceives the bull market is over. All secular bull markets have major and minor corrections. He has sold none of his commodities. But he has added to them on a correction, suggesting a variation (but not exception to) Rule 2.

RULE 2A – ON A MAJOR CORRECTION WITHIN A SECULAR BULL, WHEN THE FUNDAMENTALS REMAIN STRONG, AND YOU HAVE ADDITIONAL CAPITAL THAT NEEDS TO BE INVESTED, ADD TO YOUR INVESTMENT.

Question: But doesn’t Rogers ever make a bad investment that would become a total loss if held indefinitely? Of course. Every expert does. That’s the reason he diversifies among several investments within the hated asset class. That’s part of the allocation process.

Most investments made under the hated asset strategy are made when others are being forced to sell due to debt , margin calls, fear, etc., especially in panics. This suggests Rule 3.

RULE 3 – KEEP YOURSELF ALWAYS IN A POSITION OF NOT NEEDING THE MARKET. (I heard this stated by Richard Russell, “The great investors do not need the market.”) IN OTHER WORDS, ALWAYS INVEST ON YOUR TERMS, NOT THE MARKET’S TERMS.

In part, Rule 3 means never use borrowed money to invest and always have a cash reserve.

Question: What if I miss an investment because it never trades down to my target fire-sale price? You don’t have to have any given investment. Hold your cash and wait. If Rogers is buying or adding to his investment, you can safely follow him as long as you are following all the rules.

RULE 3A – SUPPRESS THE NOTION THAT YOU HAVE TO ALWAYS BE DOING SOMETHING. PATIENCE IS PROBABLY THE SINGLE MOST IMPORTANT CHARACTERISTIC OF GREAT INVESTORS.

2– THE BUBBLE STRATEGY

Rogers uses the Hated Asset Strategy to buy as described above. He uses the Bubble Strategy to sell. A bubble occurs after a long rise in the price of an asset class, attracting an ever increasing crowd of new investors. The size of the crowd of buyers seems to peak near the top of the bull market, which makes sense because at some point almost everyone who wants to buy that asset class will have bought, and there will be few buyers left.

So who are the sellers to these late buyers? Those following the Hated Asset Strategy, of course. This is called “distribution.” During distribution the asset in question moves from strong to weak hands. This is usually a deceptive affair, with the long secular bull market ending by forming a rounded top which is drawn out for months. Want to see what this looks like? Below is a 59-year chart of the S&P 500.

Both tops took almost a year to form. The strong hands are smart. They don’t just dump their whole load on the market at once. When the market drops a few percent, they ease back on their selling and let the last few investors waiting to get in do so, then they sell more. That’s why it’s called “distribution.” Once the distribution process is complete, then the market begins to accelerate to the downside, and sadly, most investors ride it part or all the way down.

Here is an interesting angle on the Bubble Strategy. Not only does Rogers use it to sell the assets he bought when they were hated. If he identifies a bubble, but doesn’t own any assets in that bubble, he will often sell it anyway. That is called shorting, or short-selling. A good example is the housing bubble of a few years ago. After he identified the bubble, he began shorting both the homebuilding stocks and the investment bank stocks. He has since covered (bought back) these shorts, making huge profits.

So, how do we identify a bubble? I won’t do it. Rogers (or one of my other experts) will identify it and let us know he is selling. Trying to guess what his next hated asset or bubble will be is beyond the scope of this article. But up to this time he has always been faithful to share with us what he is buying, selling or holding. Just follow everything he is saying in his interviews or in writing.

4 – SUMMARY

The above along with his books is a complete summary of Jim Rogers’ strategy as I currently understand it. Buy hated assets when he identifies them and hold them until they reach the bubble stage. When he identifies that, sell. Don’t trade in and out, but if a major correction carries an investment down to a point where he identifies it as an add, then add it if you have more funds to invest. Keep a cash reserve and never use borrowed money. Don’t get in a position of needing the market. Don’t get in a position of being forced to act. Act on your terms.

Think about how easy and relaxing this strategy is. If no hated assets are identified and no bubbles are identified, do nothing. Hold what you have. Most of the time you do nothing. You don’t have to be glued to the TV or computer hours a day. You can do creative thinking, meditating on and studying what the experts are doing.

5 – A CLOSING DEVOTIONAL WORD 
    – INVESTING IN UNDERVALUED ASSETS

At this point in the market, some people may be saying, "I wish I had bought gold at $800" or "I wish I had bought silver at $10" or I wish I had bought GDX at $20." Some observations from this:

The people who buy when assets are "hated assets" are usually the biggest winners. The people who wait until the assets are "cool" may win but not as much.

Some people follow Jesus when it's "cool" to follow Jesus, and that is good. The people who follow Jesus when it's not "cool" will probably be the biggest winners in the end. In general, the more the resistance, the greater potential gain.

Perhaps the most undervalued asset is the Bible. When's the last time someone on the mainstream media encouraged you to read it, believe it and apply it in your life? Jesus said, "Everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock." (Mt. 7:24)

Another undervalued asset is people, especially people who can give you nothing in return. Jesus said, "If you love those who love you, what reward will you get? Are not even the tax collectors doing that?" (Mt. 5:46 NIV)

At the end of this life, many good people will say, "I wish I had spent more time studying the Bible" or "I wish I had made more effort to practice self-denial" or "I wish I had spent more time with my children" or "I wish I had tried to serve people who could not serve me back." May God help us avoid these mistakes.

Investment opportunities come and go and come again, but we only get one life to invest our time. The early birds catch the biggest worms, but it's better to start late than never.  Don't wait for the crowd to act before you do.  The best investment opportunities are often off the crowd's radar.

(For further study, see Chapter 4 and Chapter 15 of Biblical Economics, a book which is available for free on this site).

God’s best to each of you…Jay