The plight of commodity investors.

[swissie]

I started investing in commodities in 1973. I made and lost a lot of money in commodities. Plenty of short term trading going on.

BUT HOW ABOUT LONG TERM INVESTING IN COMMODITIES?

Here is the problem: To store commodities costs money. This is called the "carrying charge". This is why normally futures prices reflect this. More distant contracts are more expensive than nearby contracts (contago situation). Producing constant "roll-over" costs.

What does that mean in Dollars and Cents?

Here a few current "Carrying Charges", per year and in US$:

- US Indicies 7%. Gold 7%. Copper 6%. Corn 20%. Natural Gas 20%. For example.
This makes long term investing in commodities so problematic.

REMEDY? Yes. One can buy Stocks of "Commodity Producers" and collect dividends. OR: Fill your garage with 20 Barrells of crude oil and park your car outside of your garage. Risking that your wife and neighbors will not understand the concept.

Ahhhhh. The plight of commodity investors.

[stoner]

no link to your investing course ? 

[save the frogs]

plight. lol

[save the frogs]

3 minutes ago, stoner said:

no link to your investing course ? 

 

buyandhold.com

 

[connda]

3 hours ago, save the frogs said:

 

buyandhold.com

 

Btfd 

[Foxx]

There's no such thing as "investing in commodities" - only speculation (a.k.a. gambling).

 

With actual investments there is an income stream that can be discounted to NPV to provide a valuation for the investment.  For commodities the price is based upon what one thinks (hopes, dreams) someone might pay for the commodity in the future.

 

[noobexpat]

5 minutes ago, Foxx said:

There's no such thing as "investing in commodities" - only speculation (a.k.a. gambling).

 

With actual investments there is an income stream that can be discounted to NPV to provide a valuation for the investment.  For commodities the price is based upon what one thinks (hopes, dreams) someone might pay for the commodity in the future.

 

 

I don't have any commodities but envisage its used as a hedge rather than investments. 

 

Or a 'diversifier'.

 

 

[BangkokHank]

Actually there are ETFs now for individual physical commodities. For example, PHYS is the physical gold ETF; PPLT is physical platinum; CEF is actually a combination of physical gold and physical silver (2/3 gold and 1/3 silver, as I recall); SIVR and PSLV, physical silver; etc.

 

With oil, however, it is not so easy to get an ETF that tracks the oil price because oil is traded on futures markets, which creates the problem that you mentioned regarding carrying costs, contango, etc. I experienced this problem when I thought buying oil was a sure bet when it was trading in the low teens some years ago, but I could not find a way to simply bet on the price movement. The lesson there: Stay away from investing in things like that.

 

[Lacessit]

I buy gold and silver. Buy low, sell high.

There is no carrying charge for "pool allocated" purchases of these commodities.

Gold and silver are not investments. They are currency hedges.

[Yumthai]

On 12/24/2023 at 12:00 AM, swissie said:

I started investing in commodities in 1973. I made and lost a lot of money in commodities. Plenty of short term trading going on.

BUT HOW ABOUT LONG TERM INVESTING IN COMMODITIES?

 

It seems you are in your 70s, may I kindly suggest you keep focusing on short term investing.

[ChrisP24]

Years ago I read an article about commodities that I think was quoting Warren Buffet, where he compared owning gold with owning a company like Exxon Mobil.  If you melted all of the gold that has ever been mined in the history of the world into one giant cube, the cube would measure 68 feet per side and would easily fit into a football stadium.  That gold (at the time) would be worth about the same as a billion acres of U.S. farmland plus 7 times what Exxon Mobil was worth.

 

Now if you had enough money, which would you rather buy for the long term - - that giant cube of gold, that generally holds its value in terms of purchasing power over time, and that with good timing or good luck you might be able to sell pieces of it to people during a price upswing so maybe gain a bit of purchasing power?  Or would you rather own a billion acres of U.S. farmland plus 7 companies like Exxon Mobil, making a profit every day, passing part of that profit on to shareholders every quarter as steadily increasing dividends, and reinvesting the rest into growing the business, making the business more profitable and its shares more valuable, quarter after quarter, year after year?

 

I recall that for the same reason, Warren Buffet was generally disinterested in mining companies.  Although they typically pay dividends, the profit that they instead keep and reinvest in the company ultimately is going to become just a worthless hole in the ground that no longer produces anything, and in fact will be an environmental liability.    

Edited December 25, 2023 by ChrisP24

[swissie]

On 12/24/2023 at 6:35 AM, BangkokHank said:

Actually there are ETFs now for individual physical commodities. For example, PHYS is the physical gold ETF; PPLT is physical platinum; CEF is actually a combination of physical gold and physical silver (2/3 gold and 1/3 silver, as I recall); SIVR and PSLV, physical silver; etc.

 

With oil, however, it is not so easy to get an ETF that tracks the oil price because oil is traded on futures markets, which creates the problem that you mentioned regarding carrying costs, contango, etc. I experienced this problem when I thought buying oil was a sure bet when it was trading in the low teens some years ago, but I could not find a way to simply bet on the price movement. The lesson there: Stay away from investing in things like that.

 

Physical ETF's is a good way to go. But precious metals must be stored in vaults. That too costs money. This storage cost is usually priced into the price of the ETF. Softly, spread out over time.

Let's face it: Unless stored on your property, storage costs money. Even the stocks one holds with a broker or a bank costs a certain amount of money annually. Althoug negligeable in most cases.

It remains. Carrying charges DO matter as far as commodities are concerned. US Natural Gas as an extreme example: Within weeks total carrying charges can shoot up to over 100% just to shrink down to 20% within a few weeks.

 

[swissie]

On 12/25/2023 at 8:46 AM, Yumthai said:

It seems you are in your 70s, may I kindly suggest you keep focusing on short term investing.

Upon my demise, my remaining assets will go to a foundation called "Support your local hookers".

 

[swissie]

On 12/25/2023 at 7:35 PM, ChrisP24 said:

Years ago I read an article about commodities that I think was quoting Warren Buffet, where he compared owning gold with owning a company like Exxon Mobil.  If you melted all of the gold that has ever been mined in the history of the world into one giant cube, the cube would measure 68 feet per side and would easily fit into a football stadium.  That gold (at the time) would be worth about the same as a billion acres of U.S. farmland plus 7 times what Exxon Mobil was worth.

 

Now if you had enough money, which would you rather buy for the long term - - that giant cube of gold, that generally holds its value in terms of purchasing power over time, and that with good timing or good luck you might be able to sell pieces of it to people during a price upswing so maybe gain a bit of purchasing power?  Or would you rather own a billion acres of U.S. farmland plus 7 companies like Exxon Mobil, making a profit every day, passing part of that profit on to shareholders every quarter as steadily increasing dividends, and reinvesting the rest into growing the business, making the business more profitable and its shares more valuable, quarter after quarter, year after year?

 

I recall that for the same reason, Warren Buffet was generally disinterested in mining companies.  Although they typically pay dividends, the profit that they instead keep and reinvest in the company ultimately is going to become just a worthless hole in the ground that no longer produces anything, and in fact will be an environmental liability.    

Every Gold Mine will eventually become a mere hole in the ground. But to have a gold nugget in your hands is magic. Everything will eventually turn to dust, but knowing that Gold, Silver and Diamonds will outlast us has fascinated humans for thousands of years.

Gold represents something "that lasts forever". Very appealing to people, that live in a world where "nothing lasts forever" is a blunt and sobering fact.

PS: Upon marriage, we exchange golden rings. So "it may last forever". With a divorce rate of 50%, clearly Gold has limitations to it's magic. But as a store of monetary value Gold will still be around after all the marriages have failed and future generations will not know what a US$ or a Swiss Franc once were.