Jim Rogers' mantra for getting rich

Apr 20, 2009

In this issue:
» PE investors heading back to India
» Recovery to be a long drawn process, says Volcker
» SEBI's negligence leads to overstated FII investments
» Wanted - rich candidates to serve the nation
» ...and more!!

In an interview he recently gave to Business Week, legendary investor and commodities guru, Jim Rogers has advised investors to not diversify their time and money but master one field and get rich from it. He said, "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."

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In his usual self, Rogers sounded very bullish on commodities. On being asked his view on this asset class, he said, "If history is any guide, we have further to go. The only sector of the world economy where the fundamentals are getting better is commodities. If the world economy is going to revive, commodities are going to lead it back up. If the world economy is not going to revive, commodities are still the place to be - especially with governments printing so much money. Look at the 1970s. The world economy was in the tank, but commodities did very well. We have supply constraints. Oil production is declining."

Earlier, we wrote about how in the face of an economic slowdown, private equity investments in Indian companies have virtually dried up. But given the strong long-term fundamentals of the country, the dry spell is not likely to last for long. The Carlyle Group, one of the most prominent names in private equity has further endorsed the statement. The group's Asia focused fund, which makes equity investments in small and medium sized companies that are typically at the top in their fields, and covers China, India, Japan and South Korea, has said that nearly 80% of its energies are spent towards looking at India and China opportunities.

However, the fund did admit that it was investing more in China than India because of the latter's more mature capital markets, which makes pricing a bit of a thorny issue. Nevertheless, the fund has been looking at large number of Indian companies and if the price is right, will not hesitate to invest despite fears of economic slowdown. Clearly, with risk aversion on the wane, China and India are once again coming on the radar of foreign investors.

The streak of failure of American banks continues - 25 have already collapsed this year so far, matching the total number of bank failures for the whole of 2008. The toll is expected to rise further given that the US economy is still not showing any concrete signs of recovery and the housing market is still in the dumps.

US banks can expect no respite anytime soon, given that the economic recovery is expected to be a slow process. After all, this is what Paul Volcker, the former Federal Reserve Chairman and currently the senior economic adviser to President Obama, believes. While the recovery will be a 'long slog' as per Volcker, he is of the opinion that the rate of decline 'is going to slow'.

Volcker is supported in his views by another of Obama's top economic advisor, Larry Summers. "We've seen some more mixed statistics after a period when there was no positive statistics to be found. But it is a long road and it is going to take time. It is going to take creating jobs again ... it is going to take supporting the financial system," Summers told a leading US news channel.

Stockmarkets across Asia started off this week on a mixed note today. While gains were seen in China and Hong Kong, stocks in India and Singapore closed in the red. The Indian BSE-Sensex fell down by almost 40 points, after being up almost 180 points at the start of trade.

Anyways, a US-based global equity research group Elliott Wave International, which specialises in analysis of technical charts of stock movements, is of the belief that the recent surge in Indian markets is the beginning of a long-running bull cycle that could continue for 15 years. This could take the Sensex to, hold your breath, 100,000 points within this period, or a compounded annual rise of 16%!

While the Sensex levels that this firm has projected might seem outrageous at first glance, a 15-16% compounded annual growth in the earnings of India Inc. over a period of next 15 years is not really out of bounds given the huge gap in consumption and investment that exists today. But the important fact is that it won't be a one way rise for companies' earnings or, for that matter, the Sensex all these years. There will be boom-bust cycles.

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We recently attended the analyst meet of Power Finance Corporation (PFC), the Government of India's nodal agency for financing all the power projects in the country. Therein, while stating its optimism about the government's plans for the power sector during the eleventh plan period (2007-2012) being well on stream (16% of the same having already been commissioned), PFC also showed confidence of increased participation from the private sector in power projects. It expects the incremental participation of the private sector in the power sector to move up from 9% in the 10th plan to 21% and 63% in the 11th and 12th five-year plans respectively.

In an interview with The Economic Times, Mr. N.R. Narayana Murthy, the founder chairman of Infosys has said that a feudal structure was responsible for the collapse of Satyam. "What happened in Satyam is that it was a huge scandal. Nobody could stand up and say, what is happening is wrong. Even those who thought what was happening is wrong did not have the courage and were not in an environment to say that it was wrong," believes Mr. Murthy, and rightly so.

Anyways, before the Satyam scam came out in the open, being on the board of a company was a matter of pride. But people are thinking twice now. As per a leading business daily, over 500 directors have quit the BSE-listed company boards already this year. Most people who resign sight reasons like ill health and work pressure, but it is their reputation that they are concerned about. And rightly so!

In fact, we believe that one of the positive fall-outs of the sad turn of events at Satyam is that independent directors will become far more cautious and more red flags will be raised. We just hope this trend continues and things don't get back to usual after the attention dies down.

Call it a technical glitch or sheer negligence, but SEBI has overstated the FII investment figures in dollar terms since October 2007. The market regulator's website has converted almost all FII investments (inflow and outflow) at a constant rate of Rs 40.34 to get the US dollar denominated figure. Calculated this way, FIIs have sold shares worth US$ 10.5 bn since October 2007 till date. Now, when we use the actual Rs/US$ rate (calculated by us by averaging the daily currency rates for these months), the net outflow stands at US$ 8.9 bn, or almost 16% lower than as reported by the SEBI!

Proponents saving the Mother Earth have a new mantra for how we can contribute to their efforts as well - by staying slim! As reported by The Times of India, scientists at the London School of Hygiene and Tropical Medicine's department of epidemiology and population health say food production is a major contributor to global warming. "The research team suggested that a lean population will consume almost 20 per cent less food than a population in which 40 per cent of people are obese, quotes the newspaper report. 'Driving around in a gas guzzler' is how an expert has compared moving about in a heavy body!

Forget slim, fat is in...at least when one is talking about the pocket. Political parties should give more tickets to rich is what the wealthiest candidate in these elections thinks. We are talking about Mr. Deepak Bhardwaj (declared assets of Rs 6 bn) of the Bahujan Samaj Party who, as per The Times of India, believes, "It is good that political parties nominate rich candidates in elections. If you find a rich person as your candidate, he or she can help the poor better and look after development work. How can a poor candidate serve the poor? It only stands to reason and therefore richer candidates should be given more chance to contest elections."

And the reality is not far away from the truth! Given the wealth, at least that has been disclosed by our politicians, politics indeed is the most lucrative profession these days. After all, politicians use money to buy themselves power, which they can then use to make much more money! That's a virtuous circle for politicians, and a vicious one for the country.

 Today's investing mantra
"If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game." - Warren Buffett

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