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Coffee, Sugar, Zinc


In Toddo's recent Random Thoughts he mentioned to check out a recent Larry Connor's column featuring an interview with Jim Rogers. An important consideration to take away from that interview is the point that stocks will tend to act like stocks no matter what business the underlying companies are in. Jim Rogers describes one of the disadvantages of buying raw materials-related stocks; they tend to under-perform commodities during weak periods for the equity markets. In other words, they tend to act more like stocks than commodities even when their underlying business activities are directly related to positive movements in commodity prices.

If you believe in a longer-term view where raw materials will outperform general equities, then you can either overweight raw materials-related stocks in your equity allocation with the hope that your relative performance versus your benchmark will be acceptable, or you can buy the commodities themselves. Not all of us can buy and store five tons of sugar, nor can we purchase interest in a privately-owned Bolivian zinc mine. However, it may be possible to purchase a basket of longer-term futures contracts on a variety of commodities and then periodically roll them over. This is in no way a recommendation. It is strictly to provide cursory information to you about the other investment opportunities out there so that hopefully you can investigate them further yourself.

Finally a quick, related observation: Our clients at Dorsey, Wright include many stockbrokers who have been in business for more than 25 years. I'm always fascinated by the stories they share from other market periods, particularly the 1970s. In the 1970s it was much more common than today for retail investors to buy commodities futures. In fact, I know of several brokers who, due to the bear market in stocks during the 1970s, were only able to stay in business because they also happened to be licensed to offer commodities to their customers! It was quite common for stockbrokers in the 1970s to be licensed for commodities trading. Compare that to today, after a 20-year-plus bear market in commodities, where you could probably contact 10 different retail brokers in your town in the yellow pages and not find one who is licensed or knowledgeable about commodities.
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