Buying Value and Selling Hysteria

Yes, I am going out of order in the three-book series by Jack D. Schwager, but I just finished reading the first book of the series, simply titled: Market Wizards. I had previously discussed Schwager's books in the last post, Latest Read: The New Market Wizards. I had discussed some other financial books I've recently read in the post, Some Great Financial Reads.

Again, I read through some of Jack D. Schwager's insightful interviews with some of the world's best traders. My favorite chapter of this book would have to have been under Part III: A Little Bit of Everything. It is the section titled "Buying Value and Selling Hysteria", where Schwager interviews James B. Rogers, Jr. I suppose Rogers' style is the one of all the traders Schwager has interviewed so far which I would most want to emulate in my career. Rogers actually left at one point to start his own fund with a man by the name of George Soros: it was the Quantum Fund.

There are some very interesting quotes in this chapter that should be trading aphorisms to live by:

"I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, "I just lost my money, now I have to do something to make it back." No, you don't. You should just sit there until you find something." - page 286.

Rogers on trading rules to live by:

"Look for hysteria to see if you shouldn't go the opposite way, but don't go the opposite way until you have fully examined the situation. Also, remember that the world is always changing. Be aware of change. Buy change. You should be willing to buy or sell anything. So many people say, "I could never buy that kind of stock," "I could never buy utilities," "I could never play commodities." You should be flexible and alert to investing in anything. - page 315

On couseling the average investor:

"Don't do anything until you know what you are doing. If you make 50 percent two years in a row and then lose 50 percent in the third year, you would actually be worse off than if you just put your money in a money market fund. Wait for something to come along that you know is right. Then take your profit, put it back in the money market fund, and just wait again. You will come out way ahead of everybody else." - page 315

On the magnitude of the deficit problem (as of 1989):

"The basic problem in the world today is that America is consuming more than it is saving. You need to do everything you can to encourage saving and investment: Eliminate taxation of savings, the capital gains tax, and dual taxation of dividends; bring back the more attractive incentives for IRAs, Keoghs, and 401ks. At the same time, you need to do everything you can to discourage consumption. Change our tax structure to utilize a value added tax, which taxes consumption rather than saving and investing. Cut government spending dramatically - and there are lots of ways of doing it without harming the economy too badly. We would have problems, but the problems would not be nearly as bad as when they are forced on us. If we don't bite the bullet, then we are going to have a 1930s-type collapse." - page 295.

This last statement by James B. Rogers, Jr. seems foreboding and eerily prescient. I wonder what Rogers thinks of the current federal deficit, 17 years later...