The Good, Bad, and Ugly of Investing

At 62, standing 5 feet 5 inches, and invariably sporting a bow tie, celebrity money manager James Rogers of Rogers Holdings bears no resemblance to the lanky 6-foot movie gunslinger Clint Eastwood. Still, Mr. Rogers, a regular on the weekly business shows on Fox cable, is a cocky fast gun who’s ready to take on all challengers. He also offers up an intriguing Wall Street remake of the actor’s most famous film, a Western called “The Good, the Bad and the Ugly.”A one-time sidekick of George Soros, with whom he made millions in the 1960s and 1970s, Mr. Rogers is highly opinionated about what he believes does and doesn’t make portfolio sense. In a phone chat during which he pedaled on one of the stationary bicycles housed in his Upper West Side residence, Mr. Rogers, a global thinker and an exercise addict, laid out his version of the good, the bad, and the ugly of investing. Here they are:THE GOOD: A commodities bull in recent years, Mr. Rogers believes that for investors who don’t want to sell securities short, commodities – which have surged the past few years – are still far and away the best investment bet. His focus, he said, would be on those commodities, though up, that are still way below their all-time highs. In particular, he favors soybeans, which are down 70% from their peak, cotton, orange juice, and sugar. The concept, he explained, is simple enough: Supply is down and demand is up, which means prices have to go higher, and that’s what bull markets are all about.THE BAD: That’s the financial sector, which Mr. Rogers has shorted and views as the stock market’s most overextended area, notably banks, mutual fund companies, and Fannie Mae. He thinks fund companies are especially vulnerable because of the fierce competition from the onslaught of exchange-traded funds, which, he predicts, will devastate the mutual fund industry. With ETFs, he notes, investors don’t have to worry as they do with mutual funds about high fees and tax problems. Further, he points out, studies show index funds outperform mutual funds 80% of the time.THE UGLY: The dollar is rated by Mr. Rogers as a terribly flawed currency. “Maybe if we pulled out of Iraq, the dollar would rally,” he said. As for the greenback’s recent rally, he doesn’t believe it’s sustainable, contending it’s in trouble for the next several years. Why? “Because we owe the rest the world $8 trillion, an indebtedness which is increasing at the rate of $1 trillion every 20 months,” he said. “In my mind,” he added, “the dollar is one of the world’s worst investments.”He owns about 12 to 15 other currencies because, he said, they’re less flawed than the dollar. One of his favorites is the Canadian dollar. Canada, he feels, is much sounder in stocks, bonds, and currency.Here are some of his other investment observations:* The stock market should go sideways for the next several years, although there could be a summer rally. When you have a bubble (such as in 2000), it takes a long time to eliminate the excesses. Further, in a commodities bull market, which Mr. Rogers thinks should last another nine to 17 years, stocks traditionally do poorly. An exception, he believes – a stock he owns – is ABB ($6.53), a Swiss-based maker of industrial automation and industrial products that’s traded on the Big Board and posted 2004 sales of $18.1 billion.* He’s short on long-term bonds be cause of rising inflation. “The only ones saying there’s no inflation is our government, CNBC, and a few uninformed people on Wall Street,” he said. To Mr. Rogers, it means “at some point, other countries are going to stop supporting us, but don’t ask me when.”* Mr. Rogers is short on the major home-builders. He said he wouldn’t buy real estate in such financial centers as New York, Los Angeles, Las Vegas, and Massachusetts because he expects prices there to fall. But he would buy real estate in such natural-resource centers as Oklahoma, Colorado, and Iowa, because he believes a lot of people there – such as farmers, coal miners, and oil workers – will be major beneficiaries of the commodities boom, make a lot of money, and thereby push up housing prices in these locations.* He’s buying airline bonds with 12%, 15%, and 20% yields. Business has been a disaster for the last five years and the industry lost billions. But the airlines have been working on their problems for several years by cutting costs and capacity. And at some point, he figures, the industry will turn around. If you fly these days, he notes, you’ll find the airlines are full. Suppose some airlines go bankrupt? Mr. Rogers observes bondholders would still come out okay because creditors would wind up owning the companies if there’s a turnaround.So there you have it – the investing world, according to Jimmy Rogers, who, along with his 23-month-old daughter, Hilton, who is bilingual (English and Chinese), will be spending their summer in Shanghai and Singapore so she can become more fluent in Chinese. “It’s the best investment I can make for her,” he said, “because it will become the most important language in her lifetime.”

The Good, Bad, and Ugly of Investing

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