Rogers: Diversification “A Scam”

Commodities guru Jim Rogers offers his take on the current state of the economy and stock market in an interview with BusinessWeek, saying that diversification is “a scam”, that the U.S. might be better off letting a couple big institutions fail now, and that commodities are the place to be — whether the world economy revives or not

“Diversification,” Rogers says, “is something that stock brokers came up with to protect themselves, so they wouldn’t get sued [for making bad investment choices for clients]. Henry Ford never diversified, Bill Gates didn’t diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket.”

“You can go broke diversifying,” he continues. “Ask anyone who’s diversified in the last three years. They’ve lost money. Nonprofessionals are always jumping around, thinking they have to do something. If they have a big success, they think they need another one right away. That’s when hubris sets in at its worst. That’s when people really should go to the beach. It happens to me too.”

Rogers also says that in order for the current crisis to end, there has to be some more pain. Asked if the Lehman Brothers failure showed how much harm the government would have caused if it had let other financial giants fail, he said it would be “better to let some of them fail now, rather than wait for six or eight of them to happen all at once. The system can recover from bankruptcies. … We’ve got to have some pain. Even if AIG and Fannie and Freddie and Lehman all went bankrupt, it cleans out the system.”

As for his area of expertise — commodities — Rogers says they are the place to be. “If the world economy is going to revive, commodities are going to lead it back up,” he said. “If the world economy is not going to revive, commodities are still the place to be — especially with governments printing so much money. Look at the 1970s. The world economy was in the tank, but commodities did very well. We have supply constraints. Oil production is declining.”

Rogers says he’s been buying all sorts of commodities lately, but that he’s probably bought more agricultural commodities than anything.

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