How I cracked the alpha code (Jim Rogers)

This is an interesting, wide-ranging book written by a fabulously successful investor who made so much money on Wall Street that he retired at the age of 37 and looked around for other things to do with his life. Not bad for a youth from Alabama who was a bit stunned when he got admitted to Yale on a full scholarship. Truly, one might say that Rogers cracked the alpha code for success in our society.

The prime tip for successful investing is to study things that interest you, look for the megatrends that others are missing due to herd mentality (most investors assume that whatever is going on in the markets will continue, even though history has demonstrated that market trends always come to an end), and then buy in before everyone else catches on. Sometimes he has been early, says Rogers, but his big calls – soaring oil prices in the 1970s, rebound of defense contractors like Lockheed, and a housing industry meltdown - have eventually been vindicated.

One of Rogers business associates was George Soros, another brilliant investor (whatever one thinks of his politics). They worked together at S. Bleichroeder, one of two small Wall Street firms that was engaged with foreign investments in 1968, and created the Quantum Fund, “a sophisticated, offshore hedge fund for foreign investors – who were not subject to the interest equalization tax – incorporated in the Netherlands Antilles.” Soros was the trader; Rogers did most of the research. In the 1970s, the S&P 500 rose 47%, and the Quantum Fund was up 4,200%.

After Rogers retired from investing other people’s money (he kept investing for his own account), he took two round-the-world adventure tours – one on motorcycles with girlfriend Tabitha and a second by car with his third wife Paige – which took him into many areas of the world that most people have never seen. He also sold his mansion in New York City and relocated to Singapore in 2007 with Paige and their two young daughters.

Why Singapore? Rogers was convinced that the country of the future, the next world power, was China. However, having spent some time in China he had concluded that the air was too polluted to breathe. Also, Hong Kong was home to the Cantonese dialect versus the Mandarin dialect that is the gold standard for educated Chinese – and he wanted his daughters to grow up speaking Mandarin as their alternate language. Singapore was 75% Chinese, ultramodern, had fantastic schools and healthcare, and Mandarin was spoken. The Rogers moved there and aside from annual visits to the US have basically severed ties to their native country.

As to why the US must necessarily decline while China rises, the logic goes something like this. History teaches that great powers rise and fall, and when they fall they generally don’t ever recover (China could prove to be an exception in this regard). Americans aren’t saving money for the things they want, they are borrowing instead, and eventually the bill will come due and no one will be able to pay. Second class educational system – overly expensive and relatively ineffective healthcare system – universities that have far too much overhead, give professors tenure with minimal obligations (equivalent to working 5 hours per week), and are not using new technology effectively – third world infrastructure – immensely costly foreign military operations – curbs on immigration that will undermine dynamism of the US economy – legal system that rewards opportunistic claimants versus protecting conscientious producers in our economic system – tax system of Byzantine complexity – government red tape impedes productive activity. Meanwhile, the Chinese are running what is in practice a more capitalistic system than ours, upgrading their schools, technology & infrastructure, taxing consumption vs. profits, and going around the world locking up raw material sources that we will be bidding for later after the cost has soared.

Much of this reasoning is less than air tight, especially the inevitability of who will be in charge and under what conditions by 2100. Yes, history demonstrates that great powers rise and fall, but the reasons are often far from obvious – and probably have more to do with culture and politics than with economic systems per se.

Despite developments of recent years, US remains in a strong position if it plays its cards right. Some of Rogers’ ideas seem eminently sound, such as simplifying the tax code, exposing US schools and healthcare providers to more competition, and impeding the ability of trial lawyers to bring sue and settle litigation. But others, such as giving up the effort to enforce immigration laws as a bad job and eliminating the forward positioning of US military forces, are more questionable.

As for the Chinese, they have more weaknesses than Rogers acknowledges. One is reminded of the raft of commentary two decades back about how Japan was destined to be the leading power of the 21st Century. See, e.g., The End of the American Century, Steven Schlossstein, Congdon & Weed (1989). In hindsight, these claims were far off the mark. Also, it’s worth noting that China has military aspirations of its own, which if aggressively pursued could have disastrous implications.

As an example of Rogers’ what’s down must rise reasoning, consider his suggestion that two of the most attractive turnaround situations on the planet are the economies of Myanmar and North Korea. This part of the discussion is rather hard to take seriously.

And if one was looking for the next big disruptor of the status quo, a good candidate might be the rise of artificial intelligence and robots, which will put more and more human beings out of work (and potentially convert people from productive members of society into frustrated troublemakers). Whoever comes up with the best way for accommodating to that reality may well be the winner by 2100, yet the trend is not so much as mentioned.


Note: This book was published in 2013, and at this point seems to have been taken off the market (other books by Rogers are listed on Amazon.com, but not this one).
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