Connecting the Dots

Bargain Hunter Paradise: Natural Resources and Commodities

August 16, 2016

What kind of investor are you? Are you the buy-high-sell-higher (trend continuation) type? Or are you a bargain hunter who is attracted to beaten-down (trend reversal) opportunities?

With the stock market making new highs, there is no shortage of stocks that are on fire, so trend continuation investors should be in heaven. If you’re a bargain hunter, on the other hand, the pickings are pretty slim.

However, there are still many places to invest your money other than just stocks and bonds. In particular, I’m talking about hard assets, aka commodities.

Hard assets go well beyond real estate and gold and include all types of natural resources such as oil, wheat, copper, timber, coffee, zinc, and even the often-joked-about pork bellies.

Natural resources as an asset class are frequently overlooked by investors, but many of them have been beaten down and should be at the top of every bargain hunter’s list.

You should consider commodities for two reasons:

  • Commodities don’t usually move in sync with the stock market, so it will help diversify your investment mix and potentially reduce risk. Since 2000, there has been only a 35% correlation between commodities and the stock market.
  • If you buy at the right time, you can make a mountain of money in commodities.

Here’s an example: In the 1970s, Hillary Clinton opened a commodity trading account with a company called Refco and seeded it with $1,000. Mrs. Clinton turned that $1,000 into over $100,000 in just 10 months, a whopping 9,000% return.

According to the Wall Street Journal: “Over 10 months, buying and selling futures contracts in a variety of commodities, especially cattle, Mrs. Clinton after various ups and downs had made nearly $100,000, and in July 1979 got out of the market.”

Hillary should have kept trading. At that pace, she would have accumulated $700 million in three years, a couple trillion in 10 years, and be a vigintillionaire today. (That’s a number with 63 zeros in it.)

You shouldn’t expect to make Hillary Clinton-type of returns, but my point is that investing in commodities can be very rewarding. And given the low prices many natural resources are trading at right now, they are worthy of your consideration.

There are a variety of ways to invest in commodities, including futures like Mrs. Clinton. However, the best way for most investors is via exchange-traded funds.

Name Ticker Commodity
PowerShares DB Commodity Index Tracking Fund DBC All
United States Oil Fund USO Energy
iPath Bloomberg Commodity Index Total Return ETN DJP All
iShares S&P GSCI Commodity-Indexed Trust ETF GSG All
PowerShares DB Agriculture Fund DBA Food
United States Commodity Index Fund USCI All
United States Natural Gas Fund UNG Energy
iPath Bloomberg Grains Subindex Total Return ETN JJG Food
iPath Bloomberg Sugar Subindex Total Return ETN SGG Food
The Teucrium Wheat Fund WEAT Food
iPath Bloomberg Copper Subindex Total Return ETN JJC Metals
iPath Bloomberg Cocoa Subindex Total Return ETN NIB Food
The Teucrium Soybean Fund SOYB Food
iPath Bloomberg Livestock Subindex Total ReturnSM ETN COW Food
iPath Bloomberg Nickel Subindex Total Return ETN JJN Metals
The Teucrium Sugar Fund CANE Food
iPath Bloomberg Industrial Metals Subindex Total Return ETN JJM Metals
United States Diesel Heating Oil Fund UHN Energy
United States Copper Index Fund CPER Metals
iPath Bloomberg Aluminum Subindex Total Return ETN JJU Metals
iPath Pure Beta Cotton ETN CTNN Food
iPath Pure Beta Nickel ETN NINI Metals
iPath Pure Beta Grains ETN WEET Food
PowerShares DB Oil Fund DBO Energy
PowerShares DB Base Metals Fund DBB Metals
iPath Bloomberg Coffee Subindex Total Return ETN JO Food
PowerShares DB Energy Fund DBE Energy
The Teucrium Corn Fund CORN Food

Two ETFs that track a broad basket of commodities are the PowerShares DB Commodity Index Tracking Fund (DBC) and the iShares S&P GSCI Commodity-Indexed Trust (GSG).

If you prefer a more concentrated strategy, you won’t have any problems finding ETFs for specific niches—from coffee to copper, to corn.

I’m not saying you should invest in commodities tomorrow morning. As always, timing is everything, but any bargain hunter worth his salt should be paying careful attention to natural resources and commodities—especially if you think all the nonsense of ZIRP, NIRP, and QE will ultimately result in the wild return of inflation.

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Tony Sagami
Tony Sagami

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