by Jim Rogers
In reality, Russia is still an underdeveloped nation, much better than when I first visited in 1966, but still not first world. I was there in 1990, just as the USSR was on the verge of dissolving, and again in 1999, with your mother. We heard bombs exploding while dining in Moscow as Putin's forces were consolidating power. The country is plagued by far more bombings and assassinations than is reported in the Western media. I predict that the current violence will escalate to an eventual catastrophe. President Vladimir Putin (presently incognito as prime minister) may control Moscow and St. Petersburg, but not much else, while the Russian Mafia exerts a stranglehold elsewhere. An investor can profit there, but only if he's in cahoots with the criminal element. If he operates outside the Mob, money troubles may be the least of his worries. Many foreign companies have learned by now that the Russians will take assets away whenever they like, either by taxation or by brute force. Actually, the situation in Russia is one of the reasons why I am so bullish about commodities: There is simply no way that we can expect an increased supply of raw materials from there anytime soon.
More bad news from the Russian front: Parts of Russia itself are straining to gain independence, as are parts of other former Soviet republics. The Ukraine, for example, could split at any time. Some will disagree with me, but I always point to the example of Chechnya, a small republic, about the size of Connecticut, in southern Russia. The Red Army has been trying to control Chechnya's population of only one and a half million for about fifteen years, with little success. What more do you need to know? There is no Red Army anymore—certainly not one that can hold together the country's vast expanses.
But wait? Isn't capitalism making inroads in Russia, just like in China? Sorry, but there's a huge difference between the two. Unlike China, Russia doesn't utilize its capital efficiently. Productivity levels are low, since the country tries to compete using the same infrastructure and factories built under Communist rule, with few upgrades and little modification. Furthermore, whereas Chinese citizens who study or live overseas bring back capital and know-how, Russians who leave rarely return to contribute to the country's rehabilitation.
As for India, I have observed firsthand its stifling bureaucracy, and its lack of infrastructure, especially when compared to China. The country's national highway is a two-lane road that was built decades ago and is now full of potholes, not to mention traffic, wagons, animals, pedestrians, drying vegetables, carts, breakdowns, and everything else under the sun. I had to purchase multiple cell phones there while on our trip, because each was usable only in certain areas of India. The only business to be privatized between 1991 and 2001 was a bakery. The situation is slowly improving, but it is often one step backward for every step forward. As a result, I simply am not motivated to buy into India. But as I've stressed, don't just take it from me! Keep an eye on India. If I am wrong, and it really does change, it could be a great opportunity—for investors and, most of all, for the people of India.
BE OPEN TO PEOPLE WHO ARE DIFFERENT,
WHETHER AT HOME OR ABROAD.
Demopolis, the name of the town where I grew up, means “city of the people.” But back then, people of color weren't included. Like most other places in Alabama and across the South, Demopolis was segregated. There was the white part of town, and the black part. Which also happened to be the poor section.
I have to admit, in my early years, I didn't think about the injustice of this too much. It was just how things were. We didn't know anything different. In fact, my family hardly knew any black people at all, and I had not a single black friend. But once I became a teenager, in the mid-1950s, I started to see things differently. My Uncle Chink's general store happened to be in the black part of Demopolis. One day I was handing out advertising leaflets when I observed something I'd never seen before: A Japanese woman was living in the black section solely because she had married an African-American GI. Had she married a white U.S. soldier, of course, she could have lived anywhere she wanted. She would have been exactly the same person yet would have had an entirely different life. That's when I started to realize that there had to be something seriously wrong with a system that kept people apart based on the color of their skin.
Fifty years later, I'm seeing a disturbing trend in America. Fear of terrorism and anger over the struggling economy have fueled what I sense to be a growing sentiment of isolationism and xenophobia among some of our leaders and citizens. We should close off the United States, they say, to foreign ideas, capital, products, and—predictably—people. Other countries are starting to follow suit. Now, the world has prospered mightily since the end of World War II, when we in the West vowed not to close ourselves off from the rest of the world, as happened in the 1930s with disastrous results. While Nazi Germany systematically invaded Czechoslovakia, then Poland, then France, then Russia, as part of its grand plan to conquer Europe, a war-weary America resisted its European allies' pleas to join their fight. By the time the United States did finally enter the war two years after it had begun, and only after Japan's surprise attack on Pearl Harbor, her military was no match for the German and Japanese war machines, which had spent the previous decade ratcheting up for battle. Unfortunately, too few of us today understand the lessons of history; the results will not be pretty if we repeat the isolationist policies of the 1930s.
After World War II, the world vowed never again to allow the protectionism and “begger thy neighbor” policies that had led to the Depression and world war. The General Agreement on Tariffs and Trade (GATT) was signed, opening trade and financial flows. The world has had several decades of unprecedented growth and expansion as a result. The WTO has succeeded GATT in attempting to continue the spread of trade and prosperity.
The people who designed GATT are all dead and few now read or understand history. Protectionism and isolationism are rising again. Many nations are saying, “If the United States can do it, so can we.” Difficult economic times often give birth to dangerous policies, and may again. Remember that history “rhymes” and be attentive; economic problems and war have recurred throughout history, so prepare yourself in case these tendencies persist. You may have to move to neutral countries while making investments that could benefit from turmoil, such as real assets and freely convertible currencies.
KEEP AN OPEN MIND AND
BE A WORLD CITIZEN!
You were born into a generation that pollster John Zogby has called “the first global citizens.” Your peer group is more open-minded and more globally minded than any generation that preceded it. This is remarkable, and it will greatly expand your possibilities for personal and professional happiness.
Keeping an open mind includes never closing yourself to the possibility that people are different from what you first imagined. It is natural, and often useful, to form ideas about people based on the limited information we have when we meet, from what we observe, and the details they provide. But there's a world of difference between knowing a type and knowing a person. When you've traveled all over the planet, as I have, and communicate with people from other cultures, you come to understand that, ultimately, very few human beings conform to the stereotypes imposed upon them. And, for the most part, we all want the same things out of life.
In 1960, when I decided to leave Demopolis for Yale University—in the North!—many of my neighbors could not understand why I would want to do such a thing. Most of them had never been outside of Alabama, much less the South. But I'll tell you, in addition to all of the fascinating people I met in New Haven, Connecticut, and later in New York City, some of the most interesting people to me were ones I had not known before from my hometown. Everyone I met knew who I was, but I didn't know them, because of segregation.
Understand this: If everyone saw himself as a citizen of the world rather than of his town, city, or country, the world would be a more peaceful, better place where success in all forms is abundant and available to all. That's not to say that we can't be patriotic and love our country. But we
must always be open to those who are different, because people from different backgrounds have much to teach us, and vice versa.
When your mother and I were traveling the world, we constantly met people who were afraid of those who were different—be it religion, language, ethnicity, or skin color—until they interacted with them, and laughed and swapped stories. Wars are not started by groups of people who know one another and suddenly decide to destroy one another. Twenty-year-olds prefer playing, dancing, dining, drinking, or debating with one another and will do so if given the opportunity. This has been true throughout history. It is flawed politicians who inevitably fail the kids, appeal to their worst instincts, and have them killing one another needlessly.
As you get older and read history, you will learn that war has never been good for any nation, even the ones that “win.” If you are ever in a country that descends into war, I suggest you leave until it is over. Truth is always the first casualty of war, so you need to get your distance.
A famous poet used this epitaph for his son, who had been killed in the senseless First World War:
If any question why we died
Tell them, because our fathers lied.
Your father and all of our forebears in America, for a few centuries now, have served in the military, but you should not. Break the chain and live away from wars.
My wish, as your father, is that you become a world citizen by your own will and decision. Someday I hope to see you take that first bold step.
Of all the adventures I have had in my life, you, my daughters, are the ultimate adventure. You already show me a new world. If fatherhood enriches one's travels, I am certain that the reverse is also true. I think of all the things that I have gained from my travels that I will now be able to give to you. I cannot wait to show you how to drive, how to read a map—things my father taught me. After English, what languages will you learn? From birth, a Chinese governess has taught you Mandarin and Tang dynasty poems and Chinese characters. I hope to add Spanish to the mix soon.
I think of all the places that I haven't been: the interior of Brazil, southern India, Eritrea, Iran, Israel. These and other places I will show you. Your mother and I explored moving to Shanghai or Spain, and spending time in Punta del Este, Uruguay, or Cochabamba, Bolivia. Because I am so optimistic about Asia, we chose Singapore for many reasons including a bilingual culture, great education, the world's best health care, efficiency, et cetera, everything works. Japan has been the most successful country of the past fifty years, China of the past thirty years, and Singapore of the past forty years. We hope you will always view the whole world as your home and not be so hidebound that you limit your horizons and possibilities. Be eager to move if you see opportunities. Just as our forebears did. We hope that you will grow up here in Singapore, but who knows? We are also exploring a home in Vienna, Austria, since we love it so much. Perhaps you will grow up in one of those other places. Or maybe I will buy a rocking chair and sing “Ol' Man River,” rearing a family where my father reared his in America's rural South. I suspect my father would have liked that—and, in his wisdom, might have wanted it all along.
Your grandfather died at the age of eighty-three in 2001, before you were born. It is one of my regrets that you will never meet him. You can see in his photos that he was of average height and build, but you cannot see his intensity. He was a stern disciplinarian, and I wish I was as disciplined with you. He made sure that my brothers and I knew that we had to do what needed to be done. Slacking off or putting things off until later? Unheard of in our house. As the manager of a chemical plant, he spent many, many hours at work. All five of his sons are hard workers.
Dad also made sure that we knew to save as much money as possible because nothing would ever be given to us. His father had died young in a coal mine he owned in 1929, then his mother lost it all in the Great Depression of the 1930s. He was a real son of the Depression and reared us accordingly. I now understand how focused he was on his five sons and how much he sacrificed for us. I'm like him in many respects. For instance, I rarely bother to buy new clothes. I just like old clothes better, but now I wonder if I inherited that trait from him, because he was always trying to give us more.
Your mother and I always worry that we might give you too much or make things too easy for you, since we do not want to spoil you. If my father were still alive, he wouldn't have spoiled you at all, but he would have tried to do whatever he could for you.
CHAPTER 6
Your Education, Part II:
Learn Philosophy; Learn to “Think”
PHILOSOPHY WILL TEACH YOU HOW TO
THINK FOR YOURSELF.
Happy, you were born in May 2003; Baby Bee, in March 2008. Although it's a little too early now, I hope that you will study philosophy someday. You must learn to think at a profound level if you want to understand yourself and what's important to you. You must know yourself if you want to accomplish anything in life. Studying philosophy has helped me do just this.
I am not talking about the complex logic that is characteristic of philosophy and that intimidates many people; I am referring to the simple art of thinking for yourself. So many folks today are caught up in conventional thinking, their intellectual processes circumscribed by such concepts as the state, culture, or religion. To think outside the established framework, to examine things independently—this is true philosophy. Studying philosophy trains a person to examine every concept and every “fact.”
Studying philosophy at Oxford University was a struggle for me, because they were always asking me abstract questions—such basic things as whether the sun will always rise in the east or does a tree crashing in an isolated forest make a sound. Frankly, back then I just did not see the purpose of a lot of it, but I've since come to understand the need to examine everything, no matter how accepted or proven. The ability to seek other explanations and to think around corners will serve you well.
DO CURRENT WRITINGS ON PHILOSOPHY
HELP US LEARN TO THINK?
To engage in philosophical thinking and to read books on philosophy are not the same things. True, reading helps develop our ability to think, but more effort is required to really sharpen the faculty.
Here's an exercise: Reflect on situations where conventional wisdom and custom turned out to be wrong. Take the time to find out what actually happened. This will help you to develop knowledge and confidence, so that the next time a decision is required, you will be able to constructively analyze the assumption of the majority.
THE TWO WAYS OF THINKING.
There are two methods of examination that are particularly useful in all walks of life, including investing. One is to draw conclusions from your observations, and the other is to proceed solely on the basis of logic.
Drawing a conclusion from observations is very simple. When you examine the history of the stock market, for instance, you see that the bull alternates between stocks and commodities. Historically, this has happened in cycles of fifteen to twenty-three years. The commodities market became bullish in 1999, so I expect this trend to continue. Based on historical precedent, the commodity bull may run until sometime between 2014 and 2022.
Now I will give you an illustration of what it means to infer by logic alone. I can't prove it, but I have come up with my own theory about the interplay between stocks and commodities. Take a look at Kellogg's, which boasts the world's largest share in cereal. Cereals are made from commodities such as rice, wheat, corn, and sugar. When there is a downturn in the commodities market, the cost of these foods drops. Provided that sales levels are sustained, the company's net profit goes up, which in turn is reflected in a rise in its share price. However, when the price of commodities rises, Kellogg's cannot reflect its cost increase in the price of its cereals immediately. This will affect the company's net profit, and its stock price will suffer as a consequence. Companies benefit from low costs when commodities are sluggish, and when commodity prices rise, profits drop off, taking stock
prices with them. As you can see, it is a good mental exercise to figure out how commodities and stocks are inversely correlated.
Two ways of thinking: The former is called induction (proceeding from a specific conclusion to more general observations), and the latter, deduction (proceeding from general evidence to a specific truth). Neither method is better than the other. What is important is that you train yourself to apply both, so that you can think in a balanced way.
DON'T NEGLECT THE BEAR.
What is it that most investors fail to consider? Most look for the bull and neglect the bear. As an investor, I am always in search of “what is bearish.” When people are crazed about an overheated market and are oblivious of other investment possibilities, that's when I find a good deal.
During the stock bubble of 1998, when most people ignored commodities, I started up a commodity index. Commodities had been in the doldrums for years, so no one had made any money. Most people fled the field, and few young people even studied natural resources. Fewer still went into farming or mining (MBAs were all the rage then, remember?), the end result being that we currently have a shortage of farmers and geologists. That is true in other countries as well. These factors led to a multiyear decline in productive capacity, while demand kept rising. The returns show how well commodities have done. The Rogers International Commodity Index, which I founded in 1998, quadrupled over the next ten years, while the Standard and Poor's 500 index of stocks rose about 40 percent.