Episode #449: Jim Rogers – The Adventure Capitalist’s View of Global Markets
Guest: Jim Rogers is the co-founder of the Quantum Fund and Soros Fund Management and creator of the Rogers International Commodities Index.
Date Recorded: 9/27/2022 | Run-Time: 54:20
Summary: In today’s episode, Jim gives us his take on the global markets today. We touch on inflation, commodities, central banks, and why he believes the next recession will be the worst in his lifetime. Jim also shares what countries he’s bullish on, and some of the names may make you a little queasy.
Sponsor: AcreTrader – AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online. If you’re interested in a deeper understanding, and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb.
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Links from the Episode:
- 0:39 – Sponsor: AcreTrader
- 1:52 – Intro
- 2:26 – Welcome to our guest, Jim Rogers
- 3:18 – Being held hostage in the Congo for eight days
- 5:42 – Discussing the macro environment today through the lens of interest rates
- 9:26 – How investors can change their mindset around inflation
- 14:15 – What the average investor can do when stocks and bonds are getting crushed
- 16:48 – Jim’s thoughts on the world of commodities and how we should be thinking about them
- 20:25 – Jim’s take on Silver’s decline
- 23:35 – The need for US investors to think globally
- 27:22 – Incorporating emerging markets into portfolios
- 29:34 – How to relate to investors in a world where people hold for such short time horizons
- 34:08 – The amount of countries he’s visited and invested in
- 35:49 – Episode #165: Chris Mayer; 100 Baggers; Stocks that Return 100-to-1 and How to Find Them
- 38:31 – Jim’s most memorable investment
- 42:42 – The most memorable country Jim has ever visited
- 44:04 – The Meb Faber Show podcast episodes discussing Kazakhstan and Iran
- 46:54 – Things Jim is working on and thinking about lately
Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber’s the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Sponsor Message: Today’s episode is sponsored by AcreTrader. In the first half of 2022, both stocks and bonds were down. You’ve heard us talk about the importance of diversifying beyond just stocks and bonds alone. And if you’re looking for an asset that can help you diversify your portfolio and provide a potential hedge against inflation and rising food prices, look no further than farmland. Now, you may be thinking, “Meb, I don’t want to fly to a rural area, work with a broker I’ve never met before, spend hundreds of thousands or millions of dollars to buy a farm, and then go figure out how to run it myself. Nightmare.” But that’s where AcreTrader comes in. AcreTrader is an investing platform that makes it simple to own shares of agricultural land and earn passive income. They’ve recently added timberland to their offerings, and they have one or two properties hitting the platform every week. So you can start building a diverse ag land portfolio quickly and easily online. I personally invested on AcreTrader, and I can say it was a easy process. If you want to learn more about AcreTrader, check out episode 312 when I spoke with founder, Carter Malloy. And if you’re interested in a deeper understanding on how to become a farmland investor through their platform, please visit acretrader.com/meb. That’s acretrader.com/meb.
Meb: What is up, everybody? We got an around the world amazing show for you today. We got none other than the legendary adventure capitalists, “Investment Biker” himself, Jim Rogers. Co-founder of the Quantum Fund and Soros Fund Management and creator of the Rogers International Commodities Index. Today’s episode, Jim gives us his take on the global markets today. We touch on inflation, commodities, central banks, and why he believes the next recession will be the worst in his lifetime. Jim also shares what countries he’s bullish on and some of the names that may make you a little queasy. Please enjoy this episode with Jim Rogers. Jim, welcome to the show.
Jim: I’m delighted to be here, Meb.
Meb: And let the audience know, where do we find you?
Jim: I am in Singapore at the moment, where I live, because I want my children to know Asia and to speak Chinese. And it’s hard to do in the US.
Meb: Well, I was listening to one of your podcasts earlier today. Long-time podcast listeners know I’m a beer drinker, and I managed to memorize my first Chinese phrase from you, which was cold beer. And I’ve already forgotten it. I memorized cheers and cold beer, and I was going to say it at the beginning. I was to say, “Jim, cheers. Cold beer to you,” because it’s nighttime here, morning there. And I’ve already forgotten it.
Jim: If you can say cheers and cold beer, you are ahead of the game and you can go far in life, very far in life, everywhere in the world.
Meb: We’re going to talk about a lot today, go around the world, but I think you may have the record for the only podcast guest who’s ever been held hostage in the Congo. Is that true? Are you going to have the title for that?
Jim: I was held hostage in the Congo for eight days, as a matter of fact. So, I don’t know if any of your other guests were held hostage in Congo. I didn’t see any of them if they were. But, no, the whole thing was very interesting. If you travel around the world, you’re bound to have interesting experiences.
Jim: And the funny thing, as long as you end up okay, and it’s more of a long inconvenience, they often end up being great stories. You know, as long as you don’t get an arm chopped off or you survive to tell the tale, most of the travel experiences, the ones that are often terrible are some of the most memorable, which is kind of a weird, you know, way to think about. You know, you don’t plan for the inconvenient experiences, but those often end up being ones that are burned into your brain.
Jim: Well, I have learned about life. You learn more from problems, and you learn from successes. Successes can be dangerous. Then you think you’re smart, then you think you know what you’re doing. When you have problems, you have to learn.
Meb: You might like a quote, and I’m going to forget the attribution already. We’ll add it in the show notes, listeners, but our friend Mark Yusko was using it, and he said, “Every trade makes you richer or wiser, but never both.” And I thought that was such a wonderful way to think about making mistakes in markets because so many people just want to talk about the winners. We’ve all had our share of losers if we’ve been at it long enough.
Jim: Oh, no, I have certainly learned that. The one thing I have learned…well, I don’t do it anymore. If I said, “Why don’t you buy X?” And if somebody went and bought X and it went up, they would tell all their friends how smart they are, and how wonderful they are, and why they bought it. But if it went down, they would say, “That Jim Rogers is a fool, you know, he taught me to buy this thing, and I bought it because of him, and it went down.” But if it goes up, they’ll tell everybody how smart they are.
Meb: It feels like part of becoming a good investor, at least one that survives, is, you know, learning to take those losses and being okay with it and being able to just walk away and move on to the next trade and kind of…you know, we call it the Eli Manning effect, where you just, you bounce off, and you keep moving. Let’s talk about the world today. You’ve been talking about a few trends that seem to be coming to a head here. I’m a long-time listener, read all your books, found out tonight that even my wife has read your book, or least one of your books, excuse me. And she’s a PhD in philosophy. So, kudos to you, Jim, but I figured we would start when we think about the macro, what’s going on in the world today, it’s kind of hard not to start with interest rates or just kind of this really weird situation that we are in a handful of years ago where a lot of interest rates around the world were negative, which felt like a pretty odd time in history, and then walk forward to today, and you were kind of predicted a lot what’s kind of happening. Take the mic from here.
Jim: Well, yeah, also, I’ll use the U.S., but there’s a big world out there, but the U.S. is the largest and most important market. The U.S. has had the longest period in its history without a big major problem, economic problem. You know, since 2009, things have been reasonably good in the U.S. That’s the longest in our history. That does not mean it cannot go 30 years, Meb. But the facts are this is the longest ever. So, it causes one to wonder. Now, I wonder a lot because I see huge debts that have piled up since 2009. I mean, we had a big problem in 2008 because of too much debt. Since 2009, the debt has skyrocketed everywhere. Even China has a lot of debt now, and China had no debt 25 or 30 years ago. But everybody has big debt now, especially us in the United States. Unfortunately, I don’t like saying that.
So, we’ve always had bear markets. We’ve always had recessions. We will always have them despite what the politicians in Washington tell you. And my view is, the next time we have one, it’s going to be the worst in my lifetime. 2008 was bad because of debt. Now, the debt is so much higher now that the next recession has to be the worst in my lifetime. I mean, it’s simple looking out the window and seeing what’s going on in the world. So, my view is that we are in a period, a dangerous period. Interest rates are going higher, inflation is going higher because they printed staggering amounts of money. Everybody printed staggering amounts of money, America, Japan, everybody printed huge amounts. So, we have this big inflation problem. It’s not going to go away without drastic action. And as interest rates go higher, it’s going to affect markets around the world that we’re going to have a very serious bear market. You should be worried. The fact that interest rates were the lowest they’d been in recorded history is a dangerous sign to me. That’s not a good sign. They can only go up. They have to go up if they’re the lowest they’ve ever been in the history of the world. And they were artificial. They were absurd, as we’re all finding out. But, Meb, I was around in the ’70s. Interest rates on treasury bills went to 21%, 21% own treasure bills in 1980. So, when we have serious inflation problem, it’s hard to deal with, and it takes drastic action, and it hurts.
Meb: I was joking with my father-in-law the other day and kind of moaning about mortgage rates currently, and he, like, started laughing. He said that, “I think my first mortgage was like 15% or something.” You know, that’s, like, feels unfathomable to probably people today, but very real, you know, not too long ago for many people. While we’re here, let’s stick and talk about inflation because it’s a topic that an entire generation of professional investors really haven’t had to deal with. You know, last, what is that? Four decades almost or more that people…you know, it’s been declining inflation. How does that mindset change, you know, for an asset allocator, for an investor when you have actually something that’s not 2% inflation?
Jim: Well, it hits you in the face eventually. I mean, if you have a butler who does your shopping, you may never know until he complains. But most of us who go shopping, or go to restaurants, or entertainment, education, we all notice that prices are going higher, and eventually everybody notices. Even those who have butlers notice how high things are going, and that causes problem. People have to cut back their spending, employers have to cut back something. They cannot give raises as much as people would like. It’s called recession. We’ve had them for thousands of years. We will continue to have them. Everybody has had them, and they will continue to have them.
Meb: One of my favorite tweets of the year was the American rapper Snoop Dogg. And someone had written an article saying that he has a professional cigar roller for his marijuana blunts or cigarettes. And they say Snoop pays him $50,000 a year. And then his only comment was, he says, “See, it’s inflation.” He says his salary’s going up because of inflation. But I think once it enters the common lexicon, it… I feel like the consensus at this point is that everyone believes that it’s coming back down and quick. But the long history of inflation is often such that it tends to be a little sticky. You know, once you have inflation pop up, very rarely does it kind of pop up and come back down. Was that your experience? Is that your familiarity, or how do you kind of…?
Jim: Well, Meb, as you know very well, nothing goes straight up or straight down. There are ups, downs, ups and downs. There’s corrections along the way. That happens with inflation too. And yes, if the price of oil skyrockets and then calms down for a while, people think, “Ah, inflation’s coming down.” But they’re usually temporary, especially when you have staggering amounts of money printing, and it’s compounded by war. War makes it more difficult to plant crops or to harvest anything when you have war. But the main problem, we had inflation before Ukraine. And unless something is happening dramatic, we’re going to continue to have inflation because as the economy slow down worldwide, central banks will print more money. The Japanese are already printing staggering amounts of money, and they have said we will continue to print money. It’s the second-largest economy in the world, the third-largest economy in the world. But when you have all these guys printing money, and Washington will, too, don’t think there… If things start slowing down, Meb, the Federal Reserve is going to print more money. They’re going to loosen up again. They don’t care about you and me. They care about their jobs, and that’s how they think they’ll keep their job. It’s not good for us, but they think it’s good for them.
Meb: I have a proposal that I’ve long floated. First of all, in the beginning of it, it was actually a theory. I said the Federal Reserve, I think, would just be better off if they all got together at each meeting. They got some beers, they watch some TV, maybe football or something, and then they just pegged the Fed funds rate to the two-year, which is the market-derived rate. And it often is very close, but you can see in various periods, including the last decade, where the two-year was much higher than the Fed funds rate. So, you have these periods where, you know, it’s a huge gap where it doesn’t feel like it necessarily needs to be. Even today, it’s still quite a bit lower. We’ll see if it catches up before inflation comes down. I’m not optimistic.
Jim: Sorry, I have another proposal. If I were the head of the Federal Reserve, I would abolish the Federal Reserve and then resign. We’ve had three central banks in American history. The first two disappeared for a variety of reasons. The world, many times, had not had central banks. The world has survived without central banks. And my view, usually, these guys make more mistakes than they owe, you know? People think they’re smart. They’re just bureaucrats and academics. They’re no smarter than the market. And in my experience, the market is smarter than I am. And I presume it’s smarter than the central banks, too. So, I’d get along without central bankers.
Meb: Okay, so rates have come up pretty quick, inflation even faster. I think we were over eight the last time. We’ll see where it comes in in October. What’s the average investor to do? You know, the thing we said about 60/40 kind of coming into it, and this is almost every allocation portfolio is probably down 20% this year, the thing that surprises a lot of investors is that the biggest drawdown, the biggest loss is actually quite a bit more than that. It’s north of 50%. And I don’t think we can find a country in the world that hasn’t had at least a 50% loss with a 60/40 portfolio in their own country. So, it’s happened before. Where do people hide out? What should they be thinking about? What should they be doing in a world where stocks and bonds are both getting hammered at the same time?
Jim: Well, first of all, there are other investments besides stocks and bonds. But my main answer to you is people should only invest in what they themselves know a lot about. Don’t listen to other people. Stay with what you know. Don’t listen to hot tips. Everybody wants a hot tip. Everybody wants to be rich this week, including me. You know, I’d like to be rich this week, too, but hot tips will ruin you. So, the main advice is stay with what you know. And everybody listening to this knows a lot about something, whether it’s cars or fashion or sport, something. Stay with what you know, and when you see an opportunity, then you should invest. Now, people say that’s boring. Be boring. If you want to be rich, be boring. Stay with what you know, and you will have great opportunities. Maybe you’ll only have 20 investments in your lifetime, but you’ll be very successful.
Meb: Why is that so hard, though? You know what I mean? That sounds like pretty sane advice that it’d be hard to argue with, but why do you think is it, is just human nature, laziness, envy, greed, fear? What do you think is the reason that that would be so hard to comply with?
Jim: Well, maybe people want the easy way, and they want quick answers, including me. We all want the easy way, we all want the quick answers, and we all see the internet, or we see the newspaper, the TV, and everybody says, “I could have bought Apple. This is easy. Anybody could have bought Apple.” Well, that’s good to know. I wish you had, but it looks easy. This looks like an easy way to make money. But, Meb, you know, at least I know, and I’m sure you know, too, that this is not an easy way to make money, and it’s very hard and very difficult despite what you see on the TV.
Meb: For quite a while, definitely became associated with an area we like, we talk a lot about on this podcast, is the world of natural resources, in particular commodities, which for the better part of this year is the only thing on the long side that was really going up. And with the energy complex is probably still the only thing going up. What’s that world look like to you today? Is that an area of opportunity? Is it too broad to really, you know, discuss on one particular area, but how’s commodities look to you?
Jim: Well, let’s look at all assets, which is what I have to do every day of my life. We know that bonds are still in a bubble. Bonds have never gotten that expensive in the history of the world. So, bonds are a bubble. You know, property in many places is a bubble. If you go to New Zealand, or Korea, or many places in the U.S., property is absurdly expensive on a historic basis. Stocks, we have been talking about some, many stocks got to be crazies. Samsung goes up, went up every day, Apple went up every day. You know, some stocks were clearly a bubble. The only thing that’s not a bubble that I know of is commodities. I mean, silver’s down 60% from its all-time high, sugar is down 60% from its all-time high. These are not bubble kind of numbers when you have assets that are down 50%, 60%, 70% from their all-time high. So, the only asset class I know that’s not a bubble or hasn’t been in a bubble are commodities. And everything that’s happening in the world is good for many commodities. It looks like we’re going to have electric vehicles. Well, electric vehicles use four or five times as much copper as a gasoline vehicle. And nobody’s been opening copper mines and lead mines for a long time. So, it looks to me like the fundamentals, as well as the prices for commodities, might lead to opportunities.
Meb: How do you think about for most investors, is it the actual, you know, commodity exposure itself? Is it commodity equities? Is it both? Is it depend? How should people really be thinking about ’em?
Jim: Well, there’re many ways to invest in commodities. I mean, the best way’s to become a farmer. Buy land and become a farmer. You’ll get extremely rich. But other than that, you can buy shares. You can buy futures; you can buy indexes. There are many ways to invest in commodities. Some of them simple ways. I didn’t say it was simple to make money. I said there’s simple ways to invest in commodities and then go to it. But most people are afraid of commodities. Everybody’s told them all their lives that commodities are dangerous. Well, yes, anything is dangerous if you don’t know what you’re doing. But if you know a lot about lead, you might make a whole lot of money if you figure out a way, whether a stock, or a future, or whatever, to invest in commodities. And commodities, by the way, are simpler. Nobody can know IBM or Microsoft, not even the chairman, because there’s so many employees, etc., etc. But sugar is very simple. We all know what sugar is. Everybody watching this knows what sugar is. So, that’s a good start. And if you can figure out the supply and demand, I didn’t say it was easy, I just said it’s easier than figuring out IBM, or Microsoft, or Apple, or something like that.
Meb: And the one area that’s a little bit of a surprise to me thus far, we were writing by this a little bit, has been the precious metal space. You mentioned silver being down. That hasn’t quite started to see the move yet. What’s your thesis? Is it part of the air has come out of the room due to crypto? Is it a younger generation less interested? Is it simply the time just hasn’t been right? What do you think about when you think about precious metals?
Jim: Well, with all due respect, gold did make an all-time high a few months ago, had all-time high. So, some precious metals have done well. Silver’s down. My experience is that in declining markets, everything goes down for a while, precious metals included. You go back to 2008. You’ll see that gold went down a lot. But then, they usually hit bottom near… Among the first things to hit a bottom will be the precious metals. And then people suddenly say, “Oh gosh, look at gold.” Or, “Look at silver.” And then they jump in, and then the gold will go through the roof, and precious metals will go through the roof, especially in inflationary times. I own precious metals. I have not been buying them for a while, but if they continue to go down, I hope I’m smart enough to buy precious metals. And you say, is it the generations? Or whatever. Now, throughout history, people know that when currencies and governments fall into disrepute, you better own some gold and silver. I’m an old peasant, and all of us old peasants know we need some gold in the closet, we need some silver under the bed because when things go bad, there’s nothing else, including cryptocurrencies which are going to save you.
Meb: Yeah, I mean, one of the best things investors can do, I’m referring mostly to American investors, but of all stripes, is travel. And the inflation topic is one that I think is hard to really explain to people who haven’t been through it or lived through it. And I talked to my friends in Peru, or Argentina, or various places that experienced it, and you can see the very real generational trauma it can wreak havoc on. But I have some humorous stories, too. I remember being down in Buenos Aires and seeing all these just gorgeous yachts, and I said, “Oh my god, these are more than you would see in Miami or in Los Angeles.” And I said, “Well, Meb, you know, when you have 50% inflation, it’s better to own something than to own nothing.” Meaning like, you know, cash that’s going to depreciate. And so, even if it’s a boat, which is a huge money pit, it’s better than nothing. And that’s a huge imprint on me. This is probably 15 years ago.
Jim: Well, even if they read about it, you are right, there’s nothing quite like experiencing yet to make it deep in your brain. Even reading about it is not as significant as experiencing it. And most, as you rightly point out, most Americans in the last 30, 40 years don’t know what inflation is.
Meb: We’re going to skip around a little bit. We talk a lot about the global investing perspective on this show. And there has been no harder fight than I’ve had in the past 10 years than talking to U.S. investors about the need to think globally. And the more U.S. stocks went up relative to the rest of the world, the more friction I received on that, probably culminating in maybe January. What does the rest of the world look like as far as, you know, the equity opportunity set? Are you starting to see anything particularly of interest or concern as we move outside the U.S?
Jim: Well, first of all, I would like to endorse what you just said. There are many countries, there are over 200 countries in the world. So, limiting yourself to one country seems to me not a wise thing to do. There are many, many opportunities out there in the world. You know, once upon a time, General Motors was the largest company in the world, then it went bankrupt. But Toyota, which was not a U.S. company became the largest car company in the world, and there were many, many opportunities investing in Japan. But that is true of any country in the world right now, even the obscure ones. If you can find the right management with the right products, you can make a lot of money wherever, wherever the company is. And that was true of the U.S., still is, but it’s also true of many other countries in the world.
If you go into your own home and look around, you’re going to see things from other countries. So, why limit your investments to only one country? There are opportunities, but don’t do it unless you know what you’re doing. If I say to invest in country X, and you can’t find country X on the map, don’t do it. Please don’t do it. But, no, there are huge opportunities that… As I look around the world right now, I mean, some of the great opportunities I see, Russia and Ukraine, I learned that if you invest in a country at war, near the end of the war, you usually make a lot of money. Now, I’m not investing in Russia and Ukraine at the moment, but I would like to. And speaking of that kind of thing, Venezuela is a disaster. I would like to invest in Venezuela. There’s sanctions. So, Americans are… It is difficult for Americans, but I have learned that throughout history, you invest in a country that’s a disaster. Usually, if you have staying power, you’re going to make a lot of money because no country stays a disaster forever, even if it goes bankrupt or even if it loses the war. Though that’s one way that I look at the world.
Let’s not make mistakes, but don’t think I don’t. But that is one thing to do. So, part of the problem right now is most of the disasters are yet to come. If we do go into recession for a year, two, or three in the U.S., that means everybody will have problems because we are the largest and most important. You have to take that into consideration. But look around your house and see what products that you really like, and you know are good and that might lead to an investment in another country, or just if you love going to country X on your holidays, don’t think about just going there on holiday, think about what investments might be in that country. My main message is like yours, don’t limit yourself to one country because there are many opportunities all over the world.
Meb: So, I have two things that I’m thinking about in my head. One is they’re a lot cheaper, and so people should have exposure, and value stocks tend to do well during inflationary times, but there’s the challenge that… As you mentioned, the recession, if U.S. stocks go down 50, it’d probably be a lot to hope that foreign stocks would be flat or up. So, how should we think about that as equity investors? Is it something that we should be thinking about buying them and putting ’em away for a decade? What’s like a mindset to kind of think about the opportunity set of these 40, 50 plus countries?
Jim: Well, that’s the way I try to invest. I’m lazy, and so I like to find something I can buy and own for many years that I don’t have to jump in and out, etc., etc. I mean, it’s not that easy to find things like that, but some countries are like them. I’m investing in Uzbekistan right now. I mean, it’s a disaster. Uzbekistan was one of the Soviet Union’s countries. They ruined it, totally ruined it, but it has huge assets, and there’s a new government now which is running things the way you and I would run things, I hope. And it’s very, very cheap. You know, most people can’t find it on the map. Please don’t invest in Uzbekistan unless you know what you’re doing. And I don’t know that I do. But there are places like that. There are always places like that in the world.
But you mentioned China. Yes, the Chinese market is very cheap right now, and China might be continuing to grow as a very important and successful country. I have investments in China. I’m not investing there at the moment, but I hope that someday my kids say, “Oh my gosh, he must have been a smart guy. Look at all these Chinese shares we own.” You know, for 80 years from now, I hope they’re rich because of these Chinese shares that I never sell. But there are usually opportunities. And again, look around your own home, and you will see things that are made in other countries, and that might lead to opportunities. But you are exactly right, Meb, there are opportunities in other countries. Always have been and always will be.
Meb: You know, like, one of the things when reading your books many years ago that left a huge impression to me was sort of this concept where you would travel through a lot of the countries and talk about opening up a brokerage account, picking up some shares. And I think, you know, so often investors today, particularly in sort of the Robin Hood, fast trading, I mean, you could have said this about many other, you know, generations, too, but particularly, it feels like today the time horizons are condensed from, you know, not years or decades, but not even quarters anymore or years, but, like, you know, days, weeks, months and trying to come up with a concept to relate to investors, you know, investing in something and giving it time. I remember hearing Ken French. He is like, you know, people making inferences from 1, 3, 5, 10 years is crazy. You know, like, a lot of these, if you’re buying a cheap country or a cheap commodity, you don’t know when it’s going to work out. How do you think about that? You know, like, how do you, like, if you were talking to a young person and they’re like, “Hey, you know, okay, I’m interested. Maybe I’ll start, you know, doing some of these investments in some of these countries.” How do you relay that time horizon?
Jim: Well, you have answered your own question because everybody wants the quick answer. Everybody wants to get rich this week, this month. You have enough experience. I have enough experience to know that unless you are a good short-term trader, and there are some people in the world who are extremely good at that, I am not, I am not, I’ve learned that I’m no good at it, unless you’re a short-term trader, though, the best returns are owning something for a long, long time. You can go back and look. If you had bought IBM in 1914, my god, you’d be rich. If you’d bought Microsoft in 1984, my god, you’d be rich if you just never sold it. But there are examples like that. If you had bought Germany in 1980, you know, my gosh, you’d be rich right now. Germany, of course, is one of the very successful and prosperous countries in the world. It wasn’t then, hasn’t always been. If you buy a country after a war, you usually make a lot of money because everything is cheap. And if you own it for years, countries like that eventually do very well. I can show you many examples. You can show people many examples. But people, you know, they say, “Yeah, but that’s boring.” And my answer to that is, if you want to be successful investor, be boring. Be extremely boring, and your children and grandchildren will love you.
Meb: Yeah, I spent a lot of time trying to think about a behavioral way to do this. We talk a lot about start-up investing, and I used to really think illiquidity was a negative. And I’ve sort of changed my mind on this over the years, meaning buying something that you can’t sell. We actually come from a farming background in Kansas, and so we still have and operate a wheat farm in Kansas. But we talk about a lot on the show. There are some platforms that have developed that let you invest in farms. But, you know, if you invest in those farmlands, you’re not getting liquidity for seven years, a decade. And it’s same thing with start-ups. And so this decision to buy something…actually, one of my best investments, Jim, was this start-up in…well, sorry, best investment on paper. You can never count your chips till you cash ’em. But best investments in start-ups was a Venezuelan start-up, and it’s doing really well. But it’s obviously incorporated, I think, in Delaware, but is doing well. Anyway, but this concept of illiquidity and the problem with public markets that’s hard and seductive is that you can trade them. So, it’s like almost like we need, like, some sort of lockbox, or, I mean, financial advisors is great for that too, but a way to keep people from harming themselves. I don’t have the answer, but…
Jim: Well, if people learn… I had to learn my way, and that is my way. My way is to own things a long time. But there are people who are short-term traders. But if you figure out your own way, and you look at your own examples, or the examples of history, you will see that vast fortunes can be made by owning something for a long time and not looking at the fluctuations the week to week, or month to month fluctuation. Just ignore them. If you’ve done the right homework and you’ve found the right people and the right concept, the best thing is to own it forever.
Meb: Yeah. You know, we talked to young investors a lot about this, where even at stock market sort of 10% returns, it’s pretty amazing to see the compounding. You know, 25 years you’re going to 10X, in 50 years, 100X in investment, and that for I think a lot of people is like opens their eyes. I was thinking as you were talking because of all these patchwork of countries around the world. What’s your count up to, Jim? Are you over 200? I mean, how many pins do you have on the map now?
Jim: Well, I have visited a lot of countries. I’ve driven around the world twice, and I have invested in a lot of countries. I’ve visited more than I’ve invested in. But I am constantly on the lookout for a new country. I mentioned Uzbekistan before. I went to Uzbekistan 30 or 40 years ago for the first time. Ignored it ever since. But now, I see changes taking place, good positive changes, and hopefully, whenever I can observe the world and find positive changes, if they have it in the market, I hope I can make investments there. That does not make it easy just because, I mean, I have investments in Zimbabwe now, which has been a disaster. But, if you find countries where good things are happening, you can make an investment if you do your research. I don’t know how to tell people this. We can show them example after example after example, but they will usually say, “I don’t know anything,” or, “Please give me a hot tip. Tell me what to buy.” And that’s a terrible thing to do.
Meb: The fun example, I mean, there’s a great book, we had him on the podcast, Chris Mayer, who talked about 100 baggers in the..100 to 1 in the stock market in an older book. But this concept of these investments that, you know, making a hundred times your money is very life-changing. But often, these can take, like, you know, a decade or two versus the sort of timeframe most people operate on. So, I love this concept of coming up investments, and I kind of gravitate towards a little bit of your style, too. Like, I love the deeply beaten down ideas, or things that are just, like, they’re hated or disaster, but slowly or quickly being less awful or emerging into…because there’s amazing entrepreneurs everywhere. That’s one of the biggest things you, you know, know when you travel is you see these, like, just incredible entrepreneurs in every walk of life all around the world. And if you just give them enough tools… We were saying this about Africa. We did a whole start-up series on Africa because you’re really starting to see a lot of start-ups take off in Africa over the last five years. It’s pretty exciting to see as well. But I’ve never been, so on my to-do list.
Jim: Well, I just want to repeat again, there are millions of entrepreneurs in the world, and they don’t all live in California. Many smart entrepreneurial-driven people live other places besides California and besides the United States.
Meb: There’s got to be a decent amount of countries that you went through on the first couple trips that don’t exist anymore, right? Like, drove through, and you’re like, “The lines on the map have changed since then.”
Jim: And throughout history, that’s been the case. You know, you can pick any year in history, and everything that people thought, 15 years later was wrong. 1900, everything people thought in 1900 was wrong 15 years later. Everything people thought in 1930 was wrong 15 years later. The world is always changing. And if you can figure out the changes, you’ll be successful.
Meb: Yeah, I mean, one of the great arguments for diversification is you look, again, back to 1900, and it was not necessarily altogether clear that Argentina wouldn’t be one of the, you know, best-performing markets, like a lot of similar characteristics of some of the countries that ascended. But they’ve been a really, really tough one for the 20th century.
Jim: Well, in 1900s, since you mentioned, Argentina was considered one of the great new countries of the world. People in Europe would say, “That guy’s as rich as an Argentine.” You know? Because they were very prosperous and promising. It would’ve been better off going to the United States, but many people thought Argentina was the place to go in 1900.
Meb: As you look back, I’m going to give you a couple questions we can riff off, but the first is, we ask all the podcast guests, what’s been the most memorable, and this is probably choosing from a list of thousands for you at this point, good, bad, in between, but what’s the most memorable investment you’ve ever made?
Jim: Oh, I would guess 19… It was the time when I was new in the business, and I tripled my money in like six months when everybody around me was going broke. And I said, “This is so easy. I’m going to be the next Bernard Baruch. So, I waited for the market to rally, and then I sold short, and three months later, I lost everything. That was memorable. You ask about memorable investments, that was very memorable. I went from on top of the world and being the corkiest kid in town to losing everything. It was a time in… Once when I shorted oil, I shorted oil on the Friday, and on the weekend, Iran and Iraq went to war. Needless to say, oil went through the roof on Monday. That was a memorable investment. My mistakes are usually more memorable than my success is. And I hope that everybody… Most people learn more from their mistakes than they do from their successes. When you have a success, you think it is easy. I have learned that when you have a big success, close the curtains and go to the beach for a while. Stop thinking, stop running around looking for the next big thing because you’re probably going to make a mistake.
Meb: Yeah, it’s so hard, though, when we have all the various hormones raging through us, convincing us how smart we are and how much we’re the masters of the universe of a certain investment are getting it right.
Jim: There’s nothing worse than a great success.
Meb: Did that period where you were up and then kind of gave it back, did that inform, like, the position sizing or risk-taking, you know, kind of exposures for you, or was it more just like a, “Hey, I’m going to be a little more cautious with my gains,” or was it just in one ear out the other at the time?
Jim: Well, that first one taught me, you know, the companies that I shorted, all of them went bankrupt within the next two or three years. The problem was I lost everything first. It taught me how little I knew about markets. And fortunately, I learned from the experience that you have to know… You could know a lot about a company or an investment, but you have to consider other people and markets as well, or the possibility of war or the possibility of all kinds of things happening. Disease, epidemics, anything can happen. And you have to be aware of all that. It’s very great to go into a restaurant and get a hot tip about a company, but then you have to be wise enough to consider all the other factors in the world, too. And that was something I did not know in the beginning. I hope I’ve learned that. This is not easy. I’ll repeat, this is not an easy way to make money.
Meb: And on top of that, like, one of the things thinking about so many investors, if you don’t have the appreciation and respect for history of what has at least happened already, which is usually crazy, right? Like, there’s the crazy things that have happened all over the world, hyper-inflations, stock markets going to zero, you know, on and on and on, then I feel like people are often so surprised about what happens. And we’re always… Look, things are always going to be weirder in the future, by definition. Largest drawdown is in your future. But if you don’t even at least have the understanding that normal market returns are extreme, I feel like it’s almost hopeless, right? Like people getting surprised by little moves that are happening and say, “Look, you ain’t seen nothing yet.”
Jim: Well, as I say, I hope everybody will listen to Meb and learn from Meb because it’s not easy, and there are always surprises coming from somewhere.
Meb: On the tangent to the last question on most memorable investment, Jim, what’s been the most memorable country you’ve been to? On all these travels you’ve done, is there one that sticks out where you say, “Wow, that’s seared into my brain for whatever reason?”
Jim: Well, I guess the answer is China because when I first went there, it was red China, and everybody was terrified of it, including me. And then China, in the last 30 or 40 years, has become the most successful country in the world. So, I guess it would have to be anything that goes from a disaster to a huge success that made an impression of me. And I’ve been teaching my children to speak Chinese, etc. It’s preparing them for their lifetime. So, I guess, that’s the answer is not… So, I mean, I don’t think I’m in favor of the Communist Party of China or anything, but the country itself and what has happened there in the past 30 or 40 years is remarkable. And I would like to find more countries that are going to go from a disaster to being very successful.
Meb: Well, you’ve mentioned too… I mean, certainly, there’s no shortage of lists of country that are in the disaster category. So, we’ve had fun on the podcast reaching out to portfolio managers that are usually in Europe or somewhere else that are investing in some far-flung places. We did a podcast on, I think it was Kazakhstan and one on Iran and how to invest in some of these places. And usually, it’s a little too wild for me, but I love at least trying to get a base level of understanding. Any other places that come to mind?
Jim: Well, Iran is a great example. I mean, part of the problem is, you know, we’re citizens of the land of the free, but we’re not so free compared to some other countries that people… Other people can invest in Iran, we cannot. Other people can invest in some of these countries because we are from the land of the free. But, yes, Iran, Kazakhstan, these are…well, illegal for Kazakhstan but legal for Americans, but isn’t… You know, there are countries in the world where there are great opportunities. And speaking of Kazakhstan, I find Uzbekistan, its neighbor, more interesting. But, yeah, there are great opportunities out there for somebody who’s got the time and the energy to do the research. So, I’m glad to hear you have people coming up with these crazy ideas. Some of them are going to be extremely successful.
Meb: You see, this is the problem with why I’m a quant, Jim, is that, every… You were talking about like the people that follow the tips, but, like, every idea sounds good to me. Like, if I go sit down on an ideas dinner, if I go to a conference and someone pitches an idea, I say, “That sounds amazing,” which is why I’m a quant because, otherwise, I just will love everything. I’ll be like, “That’s a great idea. I love that.” But…
Jim: Well, I have learned the more wonderful it sounds, the more careful I need to be.
Meb: Yeah. On a lot of the stuff, that’s disaster. And this applies to value investing, too, which is, so much of it is wrapped up is this concept in our world of professionals is career risk. You know, if someone listens to this podcast says, “Man, I really love Meb and Jim. I’m going to put a big chunk in Uzbekistan or Iran,” and they make money, great. You know, they can brag to their friends. When they lose money or lose their clients’ money, more importantly, you know, they get fired. And so, part of the opportunity set on the things that get pummeled, particularly the things that everyone “knows you should never invest in,” I think I don’t know what that is right now. China’s got to be somewhere in that category. But that’s the opportunity, too, right?
Jim: Well, I have learned that when there’s a disaster, I should look. Nothing I can do sometimes, like Iran, there it’s impossible, like Venezuela. But, you know, Asian countries have a word that means disaster and opportunity are the same thing. We don’t have that word in English because we haven’t been around as long. But several Asian countries have a word which literally means disaster and opportunity are the same thing. I’ve certainly learned that in my lifetime. Bust because there’s a disaster like Iran doesn’t mean I can do anything, but I should always be looking.
Meb: So, as we start to wind down, Jim, this has been really a special treat for me. This is a conversation that I’ve been looking forward to for many years. Are you putting pen to paper anymore? I mean, you’ve written a whole stack of books at this point. You ever get the itch these days to start writing a new story? What are you working on? What are you thinking about?
Jim: Well, actually, I have written some books about Japan, done some books about Japan. I’ve had three number-one best sellers in Japan because I’m saying Japan’s got serious problems. The first one was called “A Warning to Japan.” Now, the problem is nobody cares about Japan and many other countries. And so, the book doesn’t go outside of… It goes to Korea, maybe. But, no, that’s me. I don’t have another book in me that I know of right now, except I keep… The Japanese keep publishing the same book where I keep saying things are going to be bad in Japan. So, the novel Japanese publisher comes and says, “Oh, let’s do that again.” But other than that, I don’t know of anything coming yet.
Meb: Well, Japan, I mean, we could spend an entire hour or more talking about Japan as such a fascinating case study of so many things demographics about their bubble, which may have been…I mean, it’s got to be at least… If it’s not the biggest equity bubble, it’s got to be on the Mount Rushmore of equity bubbles in the ’80s. You know, I was only 10 when it was happening, but having read and studied it, I mean it seems like such a crazy… It was the largest stock market in the world back then, and then the ensuing…man, how many decades it is been since. But what a fascinating… That should be, like, the first case study people look into when they’re thinking about investing, is all things Japan.
Jim: Well, we had one in America in the 1920s, you know. And Kuwait, they had a gigantic bubble once. It was so big that people would put in an order to buy a million dollars worth of a stock, and they would give you a check postdated for six months to pay for it. And the hell of it was the brokers accepted. The bubble was so big that everybody thought this was normal. “Okay, we have the money here. Yes, this’s postdated six months.” When that bubble pulled out, oh my gosh, there were huge losses. But now, don’t worry, there have been many big bubbles in world history, and there’ll be many more.
Meb: I always have a soft spot for the internet bubble because that’s when I was graduating university and losing all my money as a young 20-something. So, for me, that was always the one that brings back the most memories. But I was actually texting with some friends recently because we do a yearly ski trip that for many years was in Japan. But, you know, they closed down because of COVID, and they have some of the best skiing in the world, and the yen is a far cry from where it was a few years ago. So, we’re itching to get back to Japan and go skiing again and get a little tailwind from the yens troubles.
Jim: Well, in bubbles, one of the things you’ll always hear is, “Oh, it’s different this time.” When you hear people tell you it’s different this time, be very, very worried. Or when people say, “Oh, you’re too old to understand,” be very, very worried. Be very careful.
Meb: We did a few meetups in Japan, and I remember having some beers and just chatting with a lot of the locals about how they thought about markets. And it was weird because, like, there’s such a cult to buy and hold here in the U.S., but in Japan, it wasn’t even like a concept. Like, a lot of the young people were like, “You don’t buy and hold stocks because they go nowhere. Like, why would you buy and hold? Why would you…?” You got to be a trader here because they don’t go up.
Jim: Yes. But an interesting thing about the Japanese stock market, speaking of buy and hold, the Japanese stock market is down over 30% over from its all-time high. If I told you that U.S. market is going down 30% and never going up again, you wouldn’t believe me. You’d think it’s crazy. You would say, “Oh, you don’t understand. You’re too old.” Or, “It’s different.” Well, just be careful.
Meb: Yeah, well, on that note, it’s never different this time. Jim, it’s been a blessing. Thank you so much for joining us today.
Jim: My pleasure and my delight. Let’s do it again sometime, Meb.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at the mebfabershow.com. We love to read the reviews. Please review us on iTunes. Subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.