Commodities Will Outshine Stocks: Jim Rogers
by David Lew
Should you invest in commodities on the advice by veteran commodities investor Jim Rogers? The Singapore-based billionaire commodities investor has been the most passionate advocate who has been consistently arguing that investing in commodities is much better than putting your money in stocks.
While people have been piling their money into stock markets all these years, the unique proposal from Jim Rogers that you can make more money out of commodities rather than stocks is worth examining.
Rogers is these days the most famous global investor in commodities. He has been passionate about investing in all kinds of commodities — gold, silver, platinum, wheat, rice, corn and even water. Recently, he said that for developing countries like India, water is the most precious commodity that investors should put their money into.
Rogers has also been consistently predicting that gold — the hottest commodity in the world — will zoom to touch a record of $2,000 per ounce in the next 10 years.
Should you believe in Jim Rogers and invest in commodities? I searched to find more about the Jim Rogers thesis on commodities investments and happened to read the following article that Jim Rogers wrote on natural resources and commodities.
It is an interesting take on why Jim Rogers believes that commodities will outperform stocks. Read it and share your comments:
Natural resources influence a significant portion of the world economy. They are the largest non-financial market in the world. Many studies indicate raw materials price movements are not correlated to the price movements of financial instruments. This means a natural resource investment can provide important portfolio diversification.
A recent study by Yale University's School of Management and the Wharton School at the University of Pennsylvania demonstrated that commodities have outperformed stocks and bonds over a recent 45-year period with less risk, and were a better hedge against inflation. The study also showed that direct, passive, commodity futures investing would have outperformed three times better than investing in commodity stocks during the same period.
Throughout history, there have been bull markets in raw materials every 30—40 years. Supply and demand regularly get out of balance, leading to recurring periods of rising (and declining) prices. During the 1980's and 1990's, natural resources had been in a bear market for about 25 years (e.g. sugar peaked in 1973, oil in 1981, etc.). Declining markets attract little in the way of increased productive capacity, and this bear market was no different. Virtually no one built an offshore drilling rig, or opened a lead mine, or developed a sugar plantation during this period. Quite the opposite — productive equipment deteriorated, was cannibalized or scrapped while other capacity closed and/or depleted.
March 5, 2010
Jim Rogers has taught finance at Columbia University's business school and is a media commentator worldwide. He is the author of Adventure Capitalist, Investment Biker, Hot Commodities, A Gift to My Children, and A Bull in China. See his website.
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