Sunday, March 29, 2009

Book: Hot Commodities

On my recent trip to Hong Kong (which reminds me, I really need to get pictures from BOTH Hong Kong and Japan up for people who are not on Facebook) one of the people I met recommended the book "Hot Commodities" by Jim Rodgers. While on a business trip in Moline, I spent some time reading this book and as a result, have decided not to start investing in commodities.

I'm always skeptical of any book that starts off sounding like a sales pitch for some "hot new thing" and this book was no different. Jim's first chapter explains that you are missing out on a great opportunity to make a lot of quick cash if you do not start investing in this hot market. It sounds much like hyperbole . . .

To its credit, the book does touch on a number of investing strategies which jive with my thinking, including investing with a long time horizon. But, I will remain out of the commodities market with my personal investments because commodities do not fit with my investment strategy. The things that I really like about stocks, compared to commodities are:

1. With stocks, the intrinsic value of the companies I am investing in is increasing. Generally, companies are growing, developing new products, improving their operations, etc. An ounce of gold is an ounce of gold and will never change.

2. I do not wish to take the risks of timing the speculative whims of the market. Jim Rodgers flatly states that you make money in commodities because of speculation. Since there is no increase in the intrinsic value of any given commodity, the gains made are purely speculative. At best, success requires time and effort spent doing analysis that, quite frankly, isn't a good use of my time. (At worst--and most likely in my view--this is a game that nobody can win in the long-term.) Since the intrinsic value of commodities is not increasing, for every dollar (or euro, yen, etc.) that is won in the market, another is lost . . . and the brokerage houses are always taking their rake . . .

What are your thoughts on commodities? Are you investing in commodities? Have you made money? Have you lost it?

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