Investing Tips from Jim Rogers and Jim Chanos

Investing tips from investing titans

First the legendary Jim Rogers (from the Financial Post)

“Most successful investors, in fact, do nothing most of the time.”

“If you want to make a lot of money, resist diversification.”

“It is remarkable how many people mistake a bull market for brains.

“On Wall Street there’s no truer adage than …’markets can remain irrational longer than you can remain solvent.'”

“No matter what we all know today, it’s not going to be true in 10 or 15 years.”

“If you want to be lucky, do your homework.”

“Swim your own races.”

“If the world economy gets better, commodities are very good place to be in … even if the world economy does not improve, commodities are still a fabulous place to be.”

“The most sensible skill that I can give to somebody born in 2003 is a perfect command of Mandarin.”

“Become a Chinese farmer, that’s what you should do.”

“If you can find ways to invest in Myanmar, you will be very, very rich over the next 20, 30, 40 years.”

“India is not a place for investors, but it’s a fabulous country for tourists”

“I don’t know any way to short either Harvard or Stanford.”

“I was poor once, I didn’t like it, I don’t want to be poor again”

Read the explanations here

In my opinion when Mr. Roger says "No matter what we all know today, it’s not going to be true in 10 or 15 years". He should apply the same word of caution on his views of China and or to Myanmar or to anywhere else.

Now to the famous short selling artist Jim Chanos (from Business insider) [ht financial post]

On Chinese politics: 

"When the leaders are all billionaires we must say that the Marxist-Leninist ideology has maybe been watered down a bit, sometimes with pigs in it."

Being a one of the strident China bear, Mr Chanos rebuts a Tu-quoque fallacy  

"'Mr. Chanos has never been to mainland China.' Well hell, I didn't work at Enron either."

On Chinese growth 

"It's the accounting tail wagging the economic dog."

On Chinese government statistics: 

"I'm not the only guy crying in the wilderness about the data coming out of China."

On Chiina’s banking system 

"The Chinese banking system is built on quicksand."

On investing research: 

"Primary research is crucial and not as many people do it as you think."

Also, do it on bottom up manner: 

"Nothing beats starting with source documents."

On conflict of interest: 

"The biggest mistake people make is being co-opted by management."

The role of short sellers: 

"The most important function that fundamental short sellers bring to the market is that they are real time financial detectives."

The intertemporal value of long term insights: 

"In investing, you can be really right but temporarily quite wrong."

Valuation matters: 

"Some of the best short ideas can look cheap from a valuation standpoint."

Spotting major errors: 

"We try to focus on businesses where something is going wrong."

Value versus shorts: 

"There’s a big difference between a long-focused value investor and a good short-seller."

On independent thinking: 

"You need to be able to weather being told you’re wrong all the time."

On Dubai’s bubble: 

"Go to Dubai and see what happened. It was…what I call it the 'Edifice complex'."

On monetary policies: 

"If everyone knows you're going to print money ... you know ... welcome to Zimbabwe."

On US and Europe’s economic problems: 

"We keep kicking the can down the road. But maybe now we're at the point where the can is kicking back"

On what I usually write about as the agency problem in the financial world: 

On being a broker: “They’re not interested in truth or what’s best for the client, but in making the sale with the least amount of work.”

On Noise versus signals: 

"Though I listen to the noise to make sure there’s no new information that I need to know, I don’t worry about most of it."

On government interventions: 

"Beware of the law of unintended consequences"

On the role of luck: 

"A lot of what happens in your life is merely serendipitous and really just luck."

A career advise: 

"If you ever have an idea and you think you need to take career risk to accomplish it, do it early in your career."

Read the explanations here

Jim Chanos Goes From Micro To Macro With Bet Against China

Jim Chanos, one of the most successful and well respected investors, who specializes is short selling, has reportedly bet against China.

This from the New York Times,

``Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

``As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

``“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point." [emphasis added]

Credit excesses is a necessary but not a sufficient condition in the formation of bubbles. That's because valuation excesses have always been a manifestation of the collective actions of mass psychology filliped by excessive doses of credit.

And markets are primarily and basically psychology, which means people respond to incentives from which government policies have been a key instrument.

So yes, while we agree with Mr. Chanos that current policies in China, and the continued pursuit thereof may bring her towards a full bubble cycle, we don't agree that China has reached a manic phase of typical bubble cycle [as we have argued in China's Bubble And The Austrian Business Cycle.]

There will be more convincing and obvious signs where China would have reached its 'euphoric' or manic zone. Mr. Chanos may be betting too early and too soon which may be catastrophic (see below).
Here is the next chink in the armor for Mr. Chanos, again the same New York Times article,

``For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

``“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”

``Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion."

``But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans. [emphasis added]

Two noteworthy developments here:

One, in contrast to Mr. Jim Chanos' former exploits where he had been one of the originating or 'lead' contrarian, here we have the famous short seller cramming with a crowd of China bears or skeptics.

In other words, instead of relying on his convictions from self-analysis, he seems to be simply borrowing the unproven idea of others.

As Warren Buffett warned, "risks comes from not knowing what you are doing".

Two, Mr. Chanos appears to confuse interpreting actions of profit driven corporations as similar with that of an economy. The latter of which is more complex with multitude of working parts driven by distinct incentives, e.g. enterprises-profits, government leadership-politics, bureaucracy-technical guidelines provided by leadership, state owned enterprises- a mixture of both etc...

In addition he appears to be bewitched by mainstream's "aggregate-ism" or the flawed notion that the world operates in simplistic dynamics-so as to fall for inane sloganisms as China Inc.

In short, Mr. Chanos appears to have departed from his field of specialization (residual specific risk), and now dabbles with issues which he seems unfamiliar with, particularly by engaging in macro bets (systematic risks).

Considering that policy based imbalances have brought upon many opportunities to engage in specific risks globally, it a curious thing for Mr. Chanos to deviate from his expertise.

And this leads us to wonder, "Could Mr. Chanos have reached what is known as the Peter Principle or "Rising to one's level of incompetence"? Or could his actions reflect on overconfidence from his strings of successes?

Jim Chanos: 10 Lessons From The Financial Crisis That Investors Have Already Forgotten

Here is the presentation recently given by Hedge Fund wizard Jim Chanos at the University of Virginia's Value Investing Conference and the Yale School of Management's Leadership Forum.
09/10/22 Chanos Virginia Value Investing Conference Presentation

Short Seller Guru Jim Chanos Is Bearish On Big Pharma

One of the more popular short seller, the billionaire hedge fund manager and president of Kynikos (Greek for "cynic"), Jim Chanos, who had been polevaulted to fame with his critical "whistle blowing" short position on Enron (which became bankrupt in 2001 and was embroiled in a scandal that led to its demise) and who made a fortune betting against banks and brokers declared that he is targeting Big Pharma.

From the Australian News, ``Mr Chanos is estimated by Trader Monthly, an American trade magazine, to have made up to $US350 million ($418m) personally in 2007. He profited from the collapse of Enron and in April 2007 warned finance ministers of the Group of Eight leading economies that banks and brokerages were heading for a calamity."

From the Business Insider,