Jim Rogers on Commodities
For the average small-time investor, it's best to turn off CNBC and Fox Business News, and concentrate on increasing earning power and savings. However, these days with so much fear and uncertainty in the economy and over the levels of government spending it's no wonder people are looking alternative investments to traditional stocks and bonds.
I do know that the price of commodities will never go to zero, because these are the raw materials used to make things humans need such food, clothing, shelter, heat, transportation, machines, etc. I also know that as the world gets more affluent demand rises for the finished goods made from these raw materials. But do they make a good long-term investment as some pundits indicate? I am skeptical. Long-term charts seem to indicate they barely keep pace with inflation, and stocks and bonds outperform. But, as with any investment, past performance does not indicate future results. To invest in commodities you must be a believer in resource scarcity or the currency debasement story.
What are the individual's choices in commodity investing? Mutual funds, ETFs, ETNs and taking possession of the commodities themselves. I'd stay away from ETNs due to counterparty risk, and, except in the case of gold and silver coins or bullion, shy away talking physical possession of commodities. I'd concentrate my efforts on identifying mutual funds and ETFs such as:
- Pimco Commodity Real Return Fund
- PowerShares DB Commodity Index Tracking Fund (DBC)
- iShares GSCI Commodity-Indexed Trust Fund (GSG)
- iShares Gold Trust(IUA) or SPDR Gold Shares (GLD)
- iShares Silver Trust (SLV)
For the well-diversified investor, I view commodities as a hedge or insurance against economic fear and uncertainty. They tend to move counter-cyclical to other financial assets and this add to their appeal to reduce the volatility of portfolios. In my view, stocks and bonds will outperform commodities long-term, and that is where I am placing my money. But for those who must invest in commodities, I think it would be a mistake to have more than 5-10% of a portfolio in this sector.
I would have no problem putting up to 10% in basic commodity funds because I look at it as a play on expanding global markets and an inflation hedge. I am not a fan of gold however and it wouldn't surprise me if those piling on the band wagon get pounded. Although, as you point out, gold has some industrial uses it is basically a speculation rather than an investment. For the record I am a fan of Jim Rogers.ReplyDelete
I'm a Jim Rogers fan too, and a believer in the global commodity demand story. Not 100% satisfied with the investment choices in the commodities area though. Some of the giants of index investing like Bogle and Malkiel seem to lump commodity investing into the speculation category.