Looking at recent performance
Commodities have traditionally been considered the black sheep in the family of asset classes — no one wanted anything to do with them. This
traditional lack of interest (which no longer applies, by the way) has generated a lot of misinformation about commodities. As a matter of fact, probably
no other asset class has suffered through so much misunderstanding and
A lot of investors are, quite frankly, scared of venturing into the world of commodities. For one thing, it seems that every time the word “commodities” is
uttered, someone pops up with a horrible story about losing their entire life
savings trading soybeans, cocoa, or some other exotic commodity.
Even though this negative perception is rapidly changing, commodities are
still often misunderstood as an investment. I actually know some investors
who invest in commodities (and who have made money off them) but who
don’t understand the fundamental reasons why commodities are such a good
long-term investment. (Yikes!)
In the next post, I show you why commodities are an attractive investment and
why many investors are becoming more interested in this asset class. I also
give you the goods on a number of global trends that are responsible for the
recent run-up in commodity prices. Those who are able to spot these trends
are going to do extremely well. And those who don’t, well, I wouldn’t want to
be in their shoes!
You Can’t Argue with Success
In recent years, commodities as an asset class have received a lot of attention
from the investor community. Many investors are turning to commodities
because they are disappointed with the returns that other investments have
offered and, more importantly, because commodities have performed extremely
well recently. The performance of commodities as an asset
class has been phenomenal in recent years. And it’s not just commodities as
an asset class that have done well; individual commodities such as crude oil
and gold have also done well recently.
For example, the price of crude oil
on the New York Mercantile Exchange (NYMEX) as shown in image has
increased from $20 per barrel in 2001 to over $70 in 2006, an increase of 350
The price of gold, another key commodity, has also increased dramatically in
Many investors, intrigued by the eye-popping performance of commodities,
want in on the action. However, a majority of investors are pouring into
commodities without knowing why commodities are performing well — and
this is a recipe for disaster.
REMEMBER,Never invest in something you don’t understand. If you hear someone on TV
or the radio mention an investment, make sure you perform your due diligence to get the ins and outs of the potential investment.Not understanding an investment before you invest in it is one of the easiest ways to lose money.
I will go through the reasons why commodities have been doing
so well so that you have an investment framework to follow in your own portfolio. I also argue that the recent run-up in commodities is only the tip of the
iceberg — most of the gains still to come!