Greg's Note: Today's Whiskey is a special excerpt from legendary financial mind Jim Rogers' book, Hot Commodities. In this essay, Jim explains away some of the myths many people associate with commodity markets. There are a lot of misconceptions and fears out there when it comes to resource investing and Jim is bent on making sure people understand these sometimes complicated, but often profitable markets just a little bit better. Are you frightened of commodity investing or do you see it as a good investment play right now? Let us know: greg@whiskeyandgunpowder.com Whiskey & Gunpowder Myth Buster Recently, at a party in New York, I mentioned that I had been talking to various groups in the United States and Europe about investment opportunities in the commodities market. Before I could get out one more word, a woman interrupted me. "Commodities!" she exclaimed, with the kind of incredulity in her voice that Manhattanites reserve for people moving to Los Angeles. "But my brother invested in pork bellies and lost his shirt. And he's an economist!" Everyone seems to have a relative who took a beating in the commodities market, and this fact (or fiction) is considered sufficient reason that no sane person would ever risk playing around with such dangerous things. That this particular victim was also a professional economist makes the warning seem even more ominous. I, however, couldn't help laughing. Billions of dollars are invested in the commodities market every day. Without the commodity futures markets, many of the things that you depend on in life, from that first cup of coffee in the morning to the aluminum in your storm door to the wool in your new suit, would be either scarce or nonexistent, and certainly more expensive. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ A Millionaire's Market Opens Up You haven't heard about the millionaires market on the evening news, but soon you will. And then, it'll be too late. This is a powerful market tool that some of the richest and most successful investors have used to build fortunes. Investors like Jim Rogers. The doors on this market are finally open for the first time, but they'll be closing on Monday, May 12. Click here to get your foot in the door… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ There are several other bromides out there for why "ordinary people" should not invest in commodities, and I want to lay these myths to rest, once and for all, so that we can get on with the more interesting business of how you can begin to make some money investing in the next-generation asset class. About That Relative of Yours Who Got Wiped Out — He was inexperienced. You can learn. Most likely, he was buying on thin margin — the minimum deposit a broker requires to take a position in a particular commodity — and when the market went against him he lost big-time. Here's how it happens: Like stocks, commodities can be bought on margin. Unlike stocks, however, where by law you have to put up at least 50 percent of the price of the shares, the margins on commodities can be even lower than 5 percent: You can buy $100 worth of soybeans for $5. If soybeans go up to $105, you've doubled your money. Beautiful. But if soybeans go down $5, you're wiped out. Not so beautiful. Experienced, smart speculators can make tons of money buying on margin. They also know that they can lose tons, too. But they can usually afford it. Your relative was in over his head. If he had bought $100 worth of soybeans in the same way that he can buy IBM — for $100 (or maybe even $50) — he would be happy when it goes up $5 and a lot less sad should it go down $5. Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history you'll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in 80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet — and prices in the commodities market still went up. In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor — and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Hedge Against a Recession — And Make up to 286% Gains By simply placing your money in some specific companies, you can make impressive gains, even as the economy falls apart. You see, some companies actually do better during a recession. Can you pinpoint which ones? We'll help you by clicking here. Don't be the last one on a sinking ship… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn't enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear. "But My Stock Broker Tells Me That Investing in Commodities Is Risky." Tell me again about all those Cisco shares you owned back in 2000. Or JDS Uniphase, or Global Crossing? So many risky stocks made the turning of the new millennium a not so happy time for many, who watched their portfolios evaporate. If you do your homework and remain rational and responsible, you can invest in commodities with perhaps less risk than playing the stock market. You don't need me to emphasize that investing in anything is a risky business. But let me point out something that you might not have realized: There has been more volatility in the NASDAQ in recent years than in any commodities index. Cisco, Yahoo! and even Microsoft have been much more volatile than soybeans, sugar, or metals. Compared with the risk record of most tech stocks, commodities look safe enough to be part of any organization's "widows and orphans fund." And let me remind you of one more important difference between commodities and stocks: Commodities cannot go to zero, while shares in Enron can (and did). Regards, Greg's Endnote: We've already mentioned our Agora Financial Investment Symposium that's being held in Vancouver, Canada. In previous years, we've assembled an impressive lineup of speakers, and this year is no different. That's why we're pleased to announce Jim Rogers as one of the many influential and experienced experts that will be speaking at this year's Symposium. But of course, Jim's name on this list is making already-limited room fill up fast. To get your ticket before they're all gone, click here… Greg's Final Endnote: If you'd like to purchase a copy of Hot Commodities for yourself, you may do so right here… |
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