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How Anyone Can Invest Proﬁtably in the World
Amid the peak of the 1920s, prices of shares kept increasing, before people could envision the lingering of the Great Depression.
Who Should Read “Hot Commodities”? And Why?
You don’t need to be extensively educated in these matters to forecast China’s insatiable appetite for goods. However, when a person with so much experience like Rogers states it, this forecast becomes more real and immediate.
He most probably wrote this book for the general public, since some parts of it are full of investment basics. Nonetheless, these basics may be just what the reader needs – if it is the first time he encounters the notion of commodity investment.
We recommend “Hot Commodities” to everyone who is interested in diversifying their portfolios and starting investing in commodities, which, according to Rogers, are the future of investing.
About Jim Rogers
Jim Rogers is the author of Investment Biker and Adventure Capitalist. He grew up in Demopolis, Alabama, received a scholarship from Yale University and served in the Army. After that, he went to work on Wall Street.
He retired early, at age 37 after co-founding the Quantum Fund, a portfolio that gained more than 4,000% in the 1970s.
“Hot Commodities Summary”
At some point in 1929, presidential consultant and financial specials Bernard Baruch, haltered for a shoeshine while he was going to his office. The guy that was shining his shoes begun giving him energetic stock tips.
Baruch understood that even the shoeshine kid had become a stock showoff. When he returned to his office, he sold each share in his possession.
In the mid-1970s, author Jim Rogers was talking to a Harvard Business School graduate who was administering an investment fund. Rogers argued that the time has come to invest in energy. Just a couple of months after the conversation, the OPEC oil ban happened, and stock prices soared.
In 1998, it appeared as though prices of certain tech shares were rising, even though others were beginning to plummet. After a broad study of the situation, Rogers realized that commodities were exceptionally underestimated, contrasted with high proﬁle, high-tech stocks.
They were in such a position that even the biggest brokerage was shutting down its practice. So, while everyone focused on Wall Street, Rogers got into commodities. He made “The Rogers Raw Materials Index Fund,” based on the Rogers International Commodities Index (RICI) – 35 essential products vital to the worldwide economy. Some time after the dot-com bubble popped, and Rogers’ index increased by 190% in 2004.
What differentiates stock and commodities investments is how much cash you have to put up. Venture capitalists must pay half of the share’s cost to buy it. 5% to 10% is the most typical “initial margin,” but when it comes to commodities, it can even be as low as 2%.
Taking advantage of that leverage is quite inviting, which is the reason why some investors lose enormous amounts of money in commodities. Hence, if you have to stay away from that hazard, try not to purchase on margin.
There are a number of commodities to be aware of. Firstly, gold has enjoyed a steady increase over the last years, even while supplies of some other commodities have decreased. Owning gold is a smart move, at least as a sort of security.
Next, lead, although history proves its usefulness, is widely bad –mouthed because the effects it has on human health. Even though people condemn it, lead is an essential component in lead-acid auto batteries, which account for 70% of the globe’s lead consumption.
The automobile market development in India and China will surely result in increased demand for lead. In 2002, China manufactured 750,000 cars. The next year, that number became four million. It is not hard to see that the balance between dwindling lead supply and the rising demand for lead is a little off.
Furthermore, sugar is another commodity that will most certainly face a growing demand. Not only it is demanded as a pure sugar, but Brazil, its most significant producer, has started using it in the production process of sugarcane ethanol.
The increasing demand for oil around the world ensures the rise of sugar consumption. The positive side of commodities is that while prices of shares and bonds can plummet, especially in times of inflation, products will always possess some value. What it means is that the overall risk is lower compared to stocks.
Key Lessons from “Hot Commodities”
1. Overcoming Objections
2. Commodity Basics
3. Long and short selling
Experts have shown some displeasure when it comes commodities. First, they argue that products are risky since people need to have specific knowledge to make the investment work.
To back up this objection, they state examples of people that lost most often because they purchased on a margin. Commodities can never lose their value. Second, the world is full of technological advancements.
However, commodities are linked with the basic human needs, and they can never stop existing, unlike technology that can get outdated. Third, although speculations can have some effect on the prices, they cannot control the long-term demand, which is most evidently growing.
Anyone who thinks about investing in commodities should think hard about his weaknesses and strengths. At the same time, don’t stop there, and continue to research your targeted product. Ask the right questions. Try to predict how the commodity’s price is going to move in the near time.
Think about the same deal elements that future deals have: quantity, description, delivery terms, and payment.
Long and short selling
There are two types of outcomes to your investment: you can either sell short or sell long. Selling long means that you buy the commodity hoping its price will increase in the future. The goal is to sell it more than you bought it. Selling short is a bit more confusing.
When you sell short, you set a date in the future to sell something you are not in possession of yet. Then, you wait for the value of that good to decline. If your guess is correct, and the price drops than you can purchase it at a lower price than the one you sold it at.
The difference between the two rates is the profit. Of course, prices may not go down as you expect them to. In sell short – deals, in such cases you are stuck. You can decrease the risk by issuing a stop order, which means that you limit how much money you are prepared to lose beforehand.
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“Hot Commodities” QuotesI have learned that when you've done your homework, once you recognize that supply and demand are totally out of whack, and you make your move, you are definitely going to get very lucky. Click To Tweet The smart investor looks for opportunities to acquire value on the cheap, with one eye out for a dynamic change in the offing that might make that investment even more valuable. Click To Tweet This, my friends, is one of those times. Click To Tweet Above all, the new investor in commodities must begin to understand the most dominant force in the world commodities markets. Click To Tweet Commodities, in fact, have been outperforming stocks, bonds, and real estate for years now. Click To Tweet
Our Critical Review
This book bears some similarity to enthusiastic ads that try to make you invest now. The difference is, however, that Jim Rogers supports his enthusiasm with facts. His personal history as Quantum Fund’s co-founder should tell us a thing or two.