Hot Commodities
Apr 24th, 2008 by Dave
Is is always interesting to read investment books published years ago and figure out how someone would have done following the strategies post publication. History acquits Jim Rogers well; in the book he is bullish on oil in the mid $40s per barrel; it is trading over $100 now.
Rogers is an astute student of history - he sees spiraling oil prices as driven by the strong growth in the Chinese economy; not by the ‘terror premium’ that the media generally attributes to the continuing war in Iraq. He discusses King Hubbert’s “peak oil” warning back in 1974 that was dismissed at the time but has been gaining credibility ever since. Rogers describes in great detail the boom and bust cycles in the commodities markets and how pricing influences investment in production infrastructure to perpetuate these cycles. He describes how different commodities markets are linked; for example how Brazilian farmers switch their sugar crops over to ethanol when oil prices are high. Since the book there have been news reports about the green movement and how switching over corn to ethanol production is driving up corn prices; this story could be another chapter in his book.
Investors that are limited to stocks and bonds might do well to read the book; Rogers makes the case for investing in commodities - not the highly leveraged short term speculation on the direction of the market but as part of a long term portfolio diversification strategy; over the long term, returns in commodities compare favorably with equity returns; and commodities prices are counter-cyclical to stock prices (as commodity prices go up, profits and stock prices go down; ex. airline industry and fuel prices). Rogers has a commodities index fund, the Rogers International Commodity Index; the fund started in 2005 around the time the book was published.
I read the book when I came across it on the Liberty Valley website; a site put together by like-minded value investors of the Warren Buffett, Peter Lynch school of investing.
