Summary List Placement
When Jim Rogers — a legendary trader profiled in Jack Schwager’s classic “Market Wizards” series and the chairman of Rogers Holdings — first started dabbling in financial markets, he was as green as they come.
“I didn’t know anything about Wall Street at the time,” he told Schwager. “I didn’t know the difference between stocks and bonds. I didn’t even know that there was a difference between stocks and bonds.”
Suffice it to say, Rogers initial bewilderment didn’t last long. Soon, he became captivated by markets and began trading in small increments. That was 1964.
After a quick stint in the army, Rogers returned to Wall Street in 1968 and found work as junior analyst covering “machine tools and advertising agencies.”
Unfortunately, Rogers had mistaken his initial luck in markets for skill. Here’s how he described what transpired over the next two years.
“I came into the market on August 1, 1968, right at the top,” he said. “But I still had some money left, and in January 1970, I figured out it was going to be a bear market.”
For a few months, Roger’s thinking proved correct — or at least he thought it did.
“By May, I had tripled my money,” he said. “In July, I started shorting stocks, and by September, I was wiped out,” he said. “Those first two years were great: I went from being a genius to a fool.”
Despite Rogers receiving the same unsympathetic education that most novice traders do, he remained undaunted. In fact, that loss taught Roger’s exactly what not to do.
From that point on, Rogers began thinking about markets differently. Soon he’d develop a set of rules that would help him successfully trounce markets moving forward.
Today Rogers is sitting atop an estimated net worth of $300 million, according to Celebrity Net Worth. That’s not bad for someone who Schwager said “began trading the stock market with a paltry $600 in 1968.”
Here are the eight trading rules that helped Rogers reach legendary status.
8 rules for success
1. Put risk and value at the forefront of your attention
“Whenever I buy or sell something, I always try to make sure I’m not going to lose any money first,” he said. “If there is a very good value, then I’m probably not going to lose much money even if I’m wrong.”
Rogers’ rule sounds awfully familiar to a similar thesis echoed by Seth Klarman, the billionaire founder of Baupost Group, and Warren Buffett: always leave a margin of safety.
2. Look for a catalyst
“You need a catalyst to make big things happen,” he said.
Rogers goes on to share an anecdote where he had identified an upcoming German election as a tailwind for German stocks. When the election went the way he’d expected, “the market exploded that same day.”
3. Patience is key
“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do,” he said. “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.”
Put differently, don’t think you always have to be adjusting and trading positions. Doing so is “a very fast way to the poorhouse,” Rogers said.
4. Betting against hysteria can pay off
“When I see hysteria, I usually like to take a look to see if I shouldn’t be going the other way,” he said.
In the late ’70s, Rogers decided to short gold after a voracious move to the upside. He then watched the price advance about $200 before it eventually collapsed.
Rogers said he developed this view after hearing Federal Reserve Chair Paul Volcker vehemently speak about suppressing inflation. That served as the catalyst for Rogers’ conviction.
5. Be a contrarian
“Never, ever, follow conventional wisdom in the market,” he said. “You have to learn to go counter to the markets. You have to learn how to think for yourself; to be able to see that the emperor has no clothes.”
Rogers still practices what he preaches. While many have heralded Federal Reserve policy and government stimulus as positives for markets, Rogers says he thinks the repercussions from these actions will “be horrible.”
6. Buy change
“Also, remember that the world is always changing. Be aware of that change,” he said. “Buy change.”
Clearly, this strategy worked for Rogers’ German stock play. A changing administration served as the catalyst for a windfall trade.
7. Be flexible
“You should be willing to buy or sell anything,” he said. “So many people say, ‘I would 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.”
Rogers isn’t afraid to dive deep into markets that others wouldn’t dream of touching.
8. Trade sparingly
Rogers makes only three to five decisions a year and sticks with them for the long term.SEE ALSO: Self-taught market wizard Richard Dennis took a $1,600 loan and turned it into an estimated $200 million. He shares the 13 trading rules that turned his performance parabolic.
Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America