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Jim Rogers and Warren Buffett on How to Manage Your Money

By Dan Ferris, editor, Extreme Value
Saturday, May 26, 2007

Managing your own money is much simpler than most people think it is.

The reason people think it's complicated is that Wall Street wants it that way. If managing your own money weren't complicated, Wall Street firms would go out of business.

It would be hard to imagine your broker, for example, calling you up and saying, "Hey, listen. You don't need to do all this buying and selling all the time. All you need to do is let your money sit in cash most of the time. Then, when you find something really great, something that you know is a good, safe bet to make plenty of money - whether it's 10 days or 10 years from now - call me up and I'll buy it for you."

Likewise, you're not going to see Peter Lynch on TV saying, "You really don't need our mutual funds. Most of them aren't that great and never will be. You really just need to sit around and wait for something that's so good, it'll make you rich without taking unnecessary risks."

Okay, so don't ask mutual fund managers or brokers about managing money. Ask millionaires and billionaires who made their money buying and selling stocks, bonds, and real estate. They'll tell you what to do. And it'll actually work.

A few years ago, in Omaha, someone asked Warren Buffett about managing money. As usual, he cut through all the crap and gave advice that made sense.

"Your default position should always be short-term instruments. And whenever you see anything intelligent to do, you should do it."

Buffett also said that asset allocation, a Wall Street obsession, is pure nonsense.

Asset allocation is Wall Street BS for when Abby Jo Cohen announces in a very pompous way that she's now going to recommend you have 65% of your money in stocks and 35% in bonds, when before it was 60% in stocks and 40% in bonds. People actually pay a lot of money for that kind of advice. Educated people. People who would otherwise impress us with their connections and money and power. God only knows why they can't see that asset allocation is a total scam. It's completely and totally unnecessary.

If you want to know what to do instead of worrying about asset allocation, remember this: "The best way to minimize risk," says Buffett, "is to think."

Jim Rogers is somebody else you ought to listen to on the subject of managing your own money. He used to work with George Soros. Rogers drove around the world twice, once on a motorcycle and once in a car, and wrote a book about each trip.

Rogers told author John Train in 1989 that you should, "take your money, put it in Treasury bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to.

"Then something will come along where you know it's right. Take all your money out of the money-market fund, put it in whatever it happens to be and stay with it for three or four or five or 10 years, whatever it is.

"You'll know when to sell again, because you'll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you'll make a whole lot of money."

We don't get to see Rogers' balance sheet because he's not a public company. But Buffett clearly follows his own advice. His latest Berkshire Hathaway balance sheet shows total cash & equivalents of more than $46 billion, equal to about 27% of the entire company's current market value.

The only problem with this simple strategy of sitting in cash and investing only when circumstances are ideal is human nature. Nobody wants to do it. Nobody wants to be patient. Everybody wants to buy and sell quickly and make a fortune overnight. Judging from the results most people get, they really just want to buy and sell quickly, whether they make a fortune or not!

Of course, the average investor's impatience is just another easy way for usExtreme Value types to get an advantage. We can sit in cash, wait for something that is too good to pass up, then buy it and hold on.

What could be simpler than that?

Good investing,


P.S. Dan Ferris thinks beating the market over the next few years will be easier than ever. In fact, he says you need just five stocks to do it – and he even offered a challenge for any big money manager who thinks he can do better.

Market Notes


The contrarian's investment strategy goes like this:

Watch CNBC for 10 minutes... read the Wall Street Journal... talk to several friends. Determine the most hated assets in the world. Buy them.

This spring, the rotted log of risky subprime lending was turned over... and home loan packages became the world's most hated assets. No matter if they were completely safe, lenders of all kinds were crushed.

Count small mortgage lender Delta Financial in the "safe, but hated" group. Far different than its bankrupt cousins, Delta's loan portfolio is extremely safe and carries a low loan-to-value ratio. Our colleague Dan Ferris added Delta to his Extreme Value portfolio in April.

Granted, Dan's readers buy stocks with long-term, hundreds-of-percent upside in mind... but Extreme Value readers are up more than 45% in just over a month in Delta. It pays to buy what the crowd hates.

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