Commodities have always been playing second, third or fourth fiddle to the other 'major' financial asset classes. Jim Rogers uses his experience to give readers an overview of commodities, and why it is a viable alternative to stocks in certain periods of the business cycles.He also emphasises the importance of identifying important supply and demand fundamentals that ultimately determine the price of commodities at the end of the day, regardless of the bull-market hysteria which often props up prices in the final stages of the bull cycle.
Interestingly, he also quotes a study from Yale university by some professors who have found that commodities can be less risky than stocks and have even outperformed stocks since the mid twentieth century, which can be controversial amid the existence of other studies that are around.
However, it still makes a good read, and all investors will gain in terms of knowledge by a deeper understanding of commodities and the way they shape our lives.
We are accustomed to reading headlines like the above in The Wall Street Journal and in the business sections of other publications. If you are like most people, you use the information to get a general sense of what future inflation might be . . . and go back to buying and selling stocks and bonds.Jim Rogers has a different suggestion for you. Learn enough about the commodity markets so that you can consider whether they offer an appropriate alternative for investing some of your funds. His book, Hot Commodities, is designed to help you achieve that goal.
I found Hot Commodities to be an easy-to-understand introduction to the subject that will appeal most to those who know nothing. If you were alive during the commodity-driven inflation of the 1970s and 1980s, you will find this book to be a little too simple for you. But you will probably enjoy the book, nevertheless. Mr. Rogers has a straightforward, humble approach to his writing that will appeal to most.
Some may avoid this book because they don't want to use the tremendous margin that is available with commodities. That's a mistake. Mr. Rogers is suggesting a plain vanilla index-fund approach to owning a portfolio of commodities over the long term with no trading and no financial leverage. His point: During a commodity up-cycle, many commodities will rise by ten-fold. Hitting most of the rise over a 10-18 year period will provide returns that exceed what bonds and stocks usually provide.
In addition, he shows that commodities tend to be countercyclical to stock and bond returns so commodities can be a useful diversification for part of a portfolio. Interestingly, commodities have also been less volatile than stocks in the last 25 years or so.
Mr. Rogers also gives you basic information in case you want to consider more adventuresome versions of what he recommends (don't do it!).
The most interesting parts of the book are the ones where he explores the pivotal role that China and Brazil play in creating a commodities boom. He looks at economic growth in developing countries, oil, gold, lead, sugar and coffee in a little detail to give you a flavor of how to analyze supply and demand fundamentals for a given commodity.
Personally, I would have found the book to be a lot more valuable if it had had more detailed analysis in it . . . and suggestions for how to do your own homework.
But that's okay. I still learned from the book, and intend to consider doing some commodity index fund investing.
I recommend this book to anyone who wants to use index fund investing to beat the pros.
